If investors are looking at the Muni - Bonds fund category, Vanguard Intermediate-Term Tax-Exempt Investor (VWITX Quick QuoteVWITX - Free Report) could be a potential option. VWITX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

VWITX 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

Vanguard Group is based in Malvern, PA, and is the manager of VWITX. Vanguard Intermediate-Term Tax-Exempt Investor debuted in September of 1977. Since then, VWITX has accumulated assets of about $2.24 billion, according to the most recently available information. The fund's current manager, James D'Arcy, has been in charge of the fund since June of 2013.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. VWITX has a 5-year annualized total return of 1.5%, and it sits in the top 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 5.43%, 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. The standard deviation of VWITX over the past three years is 5.29% compared to the category average of 8.6%. Looking at the past 5 years, the fund's standard deviation is 5.19% compared to the category average of 9.23%. 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.

For investors who think interest rates will rise, this is an important factor to consider. VWITX has a modified duration of 5.8, which suggests that the fund will decline 5.8% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.3% means that a $10,000 investment should result in a yearly payout of $430.

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. Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture.

This fund has a beta of 0.54, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, VWITX has a positive alpha of 0.01, 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, VWITX has 59.1% in high quality bonds rated at least "AA" or higher, while 34.4% are of medium quality, with ratings of "A" to "BBB". The fund has an average quality of AA, 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, VWITX is a no load fund. It has an expense ratio of 0.17% compared to the category average of 0.78%. So, VWITX is actually cheaper than its peers from a cost perspective.

Investors need to be aware that with this product, the minimum initial investment is $3,000; each subsequent investment needs to be at least $1.

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

Bottom Line

Overall, Vanguard Intermediate-Term Tax-Exempt Investor ( VWITX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Vanguard Intermediate-Term Tax-Exempt Investor ( VWITX ) 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 Muni - Bonds, make sure to go to www.zacks.com/funds/mutual-funds for additional information. And don't forget, Zacks has all of your needs covered on the equity side too! Make sure to check out Zacks.com for more information on our screening capabilities, Rank, and all our articles as well.