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If investors are looking at the Investment Grade Bond - Intermediate fund category, USAA Income Fund (USAIX - Free Report) could be a potential option. USAIX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
USAIX is one of many Investment Grade Bond - Intermediate funds to pick from. Investment Grade Bond - Intermediate funds focus on the middle part of the curve, generally with bonds that usually mature in more than three years but less than 15 years. Fixed income instruments with this maturity level usually have medium duration risk, but they also compensate investors with a modest yield, at least when compared to their short maturity counterparts. Additionally, the focus on investment grade will make funds here safer, but yields will be lower than in the junk bond category.
History of Fund/Manager
USAA Group is based in San Antonio, TX, and is the manager of USAIX. USAA Income Fund made its debut in March of 1974, and since then, USAIX has accumulated about $3.31 billion in assets, per the most up-to-date date available. The fund is currently managed by a team of investment professionals.
Performance
Of course, investors look for strong performance in funds. USAIX has a 5-year annualized total return of 3.88% and is in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 4.17%, which places it in the top third during this time-frame.
When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. The standard deviation of USAIX over the past three years is 3.23% compared to the category average of -4.2%. Over the past 5 years, the standard deviation of the fund is 3.17% compared to the category average of -7.47%. This makes the fund more volatile than its peers over the past half-decade.
Bond Duration
Modified duration is a measure of a given bond's interest rate sensitivity, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.
If you believe interest rates will rise, this is an important factor to look at. USAIX has a modified duration of 5.89, which suggests that the fund will decline 5.89% for every hundred-basis-point increase in interest rates.
Income
Income is often a big reason for purchasing a fixed income security, so it is important to consider the fund's average coupon. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 4.04% means that a $10,000 investment should result in a yearly payout of $404.
If you are looking for a strong level of current income, a higher coupon is a good choice, though it could pose a reinvestment risk; these risks can occur if rates are lower in the future when compared to the initial purchase date of the bond.
Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. With a beta of 0.98, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, USAIX has a positive alpha of 0.71, which measures performance on a risk-adjusted basis.
Ratings
Investors should also consider a bond's rating, which is a grade ( 'AAA' to 'D' ) given to a bond that indicates its credit quality. With this letter scale in mind, USAIX has 32.06% in high quality bonds rated at least 'AA' or higher, while 61.2% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of A, and focuses on high quality securities.
Expenses
For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, USAIX is a no load fund. It has an expense ratio of 0.55% compared to the category average of 0.05%. From a cost perspective, USAIX is actually more expensive than its peers.
Investors need to be aware that with this product, the minimum initial investment is $3,000; each subsequent investment needs to be at least $50.
Bottom Line
Overall, USAA Income Fund ( USAIX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, worse downside risk, and higher fees, this fund looks like a good potential choice for investors right now.
For additional information on this product, or to compare it to other mutual funds in the Investment Grade Bond - Intermediate, make sure to go to www.zacks.com/funds/mutual-funds for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.
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Is USAIX a Strong Bond Fund Right Now?
If investors are looking at the Investment Grade Bond - Intermediate fund category, USAA Income Fund (USAIX - Free Report) could be a potential option. USAIX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
USAIX is one of many Investment Grade Bond - Intermediate funds to pick from. Investment Grade Bond - Intermediate funds focus on the middle part of the curve, generally with bonds that usually mature in more than three years but less than 15 years. Fixed income instruments with this maturity level usually have medium duration risk, but they also compensate investors with a modest yield, at least when compared to their short maturity counterparts. Additionally, the focus on investment grade will make funds here safer, but yields will be lower than in the junk bond category.
History of Fund/Manager
USAA Group is based in San Antonio, TX, and is the manager of USAIX. USAA Income Fund made its debut in March of 1974, and since then, USAIX has accumulated about $3.31 billion in assets, per the most up-to-date date available. The fund is currently managed by a team of investment professionals.
Performance
Of course, investors look for strong performance in funds. USAIX has a 5-year annualized total return of 3.88% and is in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 4.17%, which places it in the top third during this time-frame.
When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. The standard deviation of USAIX over the past three years is 3.23% compared to the category average of -4.2%. Over the past 5 years, the standard deviation of the fund is 3.17% compared to the category average of -7.47%. This makes the fund more volatile than its peers over the past half-decade.
Bond Duration
Modified duration is a measure of a given bond's interest rate sensitivity, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.
If you believe interest rates will rise, this is an important factor to look at. USAIX has a modified duration of 5.89, which suggests that the fund will decline 5.89% for every hundred-basis-point increase in interest rates.
Income
Income is often a big reason for purchasing a fixed income security, so it is important to consider the fund's average coupon. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 4.04% means that a $10,000 investment should result in a yearly payout of $404.
If you are looking for a strong level of current income, a higher coupon is a good choice, though it could pose a reinvestment risk; these risks can occur if rates are lower in the future when compared to the initial purchase date of the bond.
Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. With a beta of 0.98, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, USAIX has a positive alpha of 0.71, which measures performance on a risk-adjusted basis.
Ratings
Investors should also consider a bond's rating, which is a grade ( 'AAA' to 'D' ) given to a bond that indicates its credit quality. With this letter scale in mind, USAIX has 32.06% in high quality bonds rated at least 'AA' or higher, while 61.2% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of A, and focuses on high quality securities.
Expenses
For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, USAIX is a no load fund. It has an expense ratio of 0.55% compared to the category average of 0.05%. From a cost perspective, USAIX is actually more expensive than its peers.
Investors need to be aware that with this product, the minimum initial investment is $3,000; each subsequent investment needs to be at least $50.
Bottom Line
Overall, USAA Income Fund ( USAIX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, worse downside risk, and higher fees, this fund looks like a good potential choice for investors right now.
For additional information on this product, or to compare it to other mutual funds in the Investment Grade Bond - Intermediate, make sure to go to www.zacks.com/funds/mutual-funds for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.