If investors are looking at the Muni - Bonds fund category, American Funds High Income Municipals Bond F (ABHFX Quick QuoteABHFX - Free Report) could be a potential option. ABHFX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

ABHFX is one of many Muni - Bonds funds to choose from. Muni - Bonds funds invest in debt securities issued by states and local municipalities, which are typically used to pay for infrastructure construction, schools, and other government functions. These securities can be backed by taxes (revenue bonds), but others are known as "general obligation" and are not necessarily backed by a defined source. These bonds are especially attractive because of their inherent tax benefits.

History of Fund/Manager

American Funds is based in Los Angeles, CA, and is the manager of ABHFX. Since American Funds High Income Municipals Bond F made its debut in September of 1994, ABHFX has garnered more than $126.00 million in assets. The fund's current manager is a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. ABHFX has a 5-year annualized total return of 2.64%, 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 7.73%, which places it in the top 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. Compared to the category average of 11.07%, the standard deviation of ABHFX over the past three years is 7.05%. The standard deviation of the fund over the past 5 years is 7.26% compared to the category average of 12.13%. This makes the fund less 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.

For investors who think interest rates will rise, this is an important factor to consider. ABHFX has a modified duration of 6.9, which suggests that the fund will decline 6.9% for every hundred-basis-point increase in interest rates.

Income

We must remember to consider the fund's average coupon, as income is traditionally a big reason for purchasing a fixed income security. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.5% means that a $10,000 investment should result in a yearly payout of $450.

While a higher coupon is good for when you want a strong level of current income, it could present a reinvestment risk 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.

ABHFX carries a beta of 0.69, 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 1.79, 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, ABHFX has 28.5% in medium quality bonds, with ratings of "A" to "BBB". The fund's junk bond component-bonds rated "BB" or below-is at 13.1%, giving ABHFX an average quality of BBB. This means that it focuses on medium quality securities.

However, it is worth noting that 38% of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.

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, ABHFX is a no load fund. It has an expense ratio of 0.69% compared to the category average of 0.93%. ABHFX is actually cheaper than its peers when you consider factors like cost.

This fund requires a minimum initial investment of $250, and each subsequent investment should be at least $50.

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

Bottom Line

Overall, American Funds High Income Municipals Bond F ( ABHFX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, American Funds High Income Municipals Bond F ( ABHFX ) looks like a good potential choice for investors right now.

This could just be the start of your research on ABHFX in the Muni - Bonds category. Consider going to www.zacks.com/funds/mutual-funds for additional information about this fund, and all the others that we rank as well for additional information. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.