If you have been looking for Muni - Bonds funds, a place to start could be American Century CA High Yield Municipals A (CAYAX Quick QuoteCAYAX - Free Report) . CAYAX holds a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

We classify CAYAX in the Muni - Bonds category, an area rife with potential choices. Muni - Bonds funds focus their investments on debt securities issued by state and local governments. These are typically used to pay for the construction of infrastructure, the operation of public schools, and other municipal functions. These securities can come in the form of revenue bonds, which are backed by taxes, as well as "general obligation" bonds that are not backed by a defined source. Investors are usually interested that come with most municipal bonds, which can be especially important for those in higher tax brackets.

History of Fund/Manager

American Century is based in Kansas City, MO, and is the manager of CAYAX. The American Century CA High Yield Municipals A made its debut in January of 2003 and CAYAX has managed to accumulate roughly $48.19 million in assets, as of the most recently available information. The fund is currently managed by Joseph Gotelli who has been in charge of the fund since January of 2012.

Performance

Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 0.97%, and it sits in the middle third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 5.86%, which places it in the middle third during this time-frame.

It is important to note that the product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund's [%] sale charge. If sales charges were included, total returns would have been lower.

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. Over the past three years, CAYAX's standard deviation comes in at 7.9%, compared to the category average of 10.98%. Over the past 5 years, the standard deviation of the fund is 7.58% compared to the category average of 12.02%. This makes the fund less volatile than its peers over the past half-decade.

Bond Duration

Modified duration is a measure of a specific bond's interest rate sensitivity, and is an excellent way to judge how fixed income securities will respond to a shifting rate environment.

If you believe interest rates will rise, this is an important factor to look at. CAYAX has a modified duration of 8.33, which suggests that the fund will decline 8.33% 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. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.75% means that a $10,000 investment should result in a yearly payout of $475.

For those seeking a strong level of current income, a higher coupon is typically good news. However, it could pose a reinvestment risk if rates are lower in the future when compared to the initial purchase date of the bond. Since income is just one part of the bond picture, investors need to consider risk relative to broad benchmarks.

CAYAX carries a beta of 0.74, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.25, 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, CAYAX has 28.31% in high quality bonds rated at least "AA" or higher, while 23.15% are of medium quality, with ratings of "A" to "BBB". The fund has an average quality of BBB, and focuses on medium quality securities.

However, it is worth noting that 44% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.

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, CAYAX is a load fund. It has an expense ratio of 0.74% compared to the category average of 0.89%. So, CAYAX is actually cheaper than its peers from a cost perspective.

Investors should also note that the minimum initial investment for the product is $2,500 and that each subsequent investment needs to be at $50.

Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.

Bottom Line

Overall, American Century CA High Yield Municipals A ( CAYAX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

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