Investment Grade Bond - Short fund seekers should consider taking a look at Thompson Bond Fund (THOPX Quick QuoteTHOPX - Free Report) . THOPX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.

Objective

THOPX is part of the Investment Grade Bond - Short category, a segment that boasts an array of other possible selections. Investment Grade Bond - Short funds target the short end of the curve by focusing on bonds that mature in less than two years. Fixed income instruments with this maturity level typically have low duration risk and pay out small yields, at least in comparison to their longer-dated peers. Also, these funds tend to be safer because of their focus on investment grade, but yields will be lower than could be found in the junk bond category.

History of Fund/Manager

Thompson is based in Madison, WI, and is the manager of THOPX. Thompson Bond Fund debuted in February of 1992. Since then, THOPX has accumulated assets of about $1.96 billion, according to the most recently available information. The fund is currently managed by Jason Stephens who has been in charge of the fund since February of 2009.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. THOPX has a 5-year annualized total return of 4.54%, and it sits 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 8.44%, 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. Over the past three years, THOPX's standard deviation comes in at 2.77%, compared to the category average of 2.1%. Looking at the past 5 years, the fund's standard deviation is 2.99% compared to the category average of 2.36%. 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.

For those that believe interest rates will rise, this is an important factor to consider. THOPX has a modified duration of 2.46, which suggests that the fund will decline 2.46% for every hundred-basis-point increase in interest rates.

Income

It is important to consider the fund's average coupon because income is often a big reason for purchasing a fixed income security. This metric calculates the fund's average payout in a given year. For example, this fund's average coupon of 5.61% means that a $10,000 investment should result in a yearly payout of $561.

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.

This fund has a beta of 0.16, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, THOPX has a positive alpha of 1.99, 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, THOPX has 68.56% in medium quality bonds, with ratings of "A" to "BBB". The fund's junk bond component-bonds rated "BB" or below-is at 14.69%, giving THOPX an average quality of BBB. This means that it focuses on medium quality securities.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, THOPX is a no load fund. It has an expense ratio of 0.73% compared to the category average of 0.57%. So, THOPX is actually more expensive than its peers from a cost perspective.

While the minimum initial investment for the product is $250, investors should also note that each subsequent investment needs to 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, even with its comparatively strong performance, average downside risk, and higher fees, Thompson Bond Fund ( THOPX ) has a high Zacks Mutual Fund rank, and therefore looks a good potential choice for investors right now.

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