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Is VFICX a Strong Bond Fund Right Now?

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Investment Grade Bond - Intermediate fund seekers should not consider taking a look at Vanguard Intermediate-Term Investment-Grade Investor (VFICX - Free Report) at this time. VFICX carries a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify VFICX in the Investment Grade Bond - Intermediate category, an area rife with potential choices. Investment Grade Bond - Intermediate funds target the middle part of the curve, typically by investing in bonds that mature in more than three years but less than 15 years. At these maturity levels, fixed income instruments have medium duration risk--but they compensate investors with a respectable yield compared to shorter maturity options. Finally, a focus on investment grade ensures that these funds are safer, but yields will be lower than in the junk bond category.

History of Fund/Manager

Vanguard Group is based in Malvern, PA, and is the manager of VFICX. The Vanguard Intermediate-Term Investment-Grade Investor made its debut in November of 1993 and VFICX has managed to accumulate roughly $2.18 billion in assets, as of the most recently available information. A team of investment professionals is the fund's current manager.

Performance

Investors naturally seek funds with strong performance. This fund in particular has delivered a 5-year annualized total return of 3.85%, and is in the middle third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 5.95%, 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 VFICX over the past three years is 4.63% compared to the category average of 10.91%. The fund's standard deviation over the past 5 years is 4.13% compared to the category average of 9.2%. This makes the fund less volatile than its peers over the past half-decade.

With a beta of 1.1, this fund is more volatile than a broad market index of fixed income securities. Taking this into account, VFICX has a positive alpha of 0.56, 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, VFICX has 23.68% in high quality bonds rated at least 'AA' or higher, while 73.67% 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

As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, VFICX is a no load fund. It has an expense ratio of 0.20% compared to the category average of 0.79%. Looking at the fund from a cost perspective, VFICX is actually cheaper than its peers.

This fund requires a minimum initial investment of $3,000, and each subsequent investment should be at least $1.

Bottom Line

Overall, Vanguard Intermediate-Term Investment-Grade Investor ( VFICX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, better downside risk, and lower fees, this fund looks like a somewhat weak choice for investors right now.

For additional information on the Investment Grade Bond - Intermediate area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into VFICX too for additional information. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.


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