There are plenty of choices in the Diversified Bonds category, but where should you start your research? Well, one fund that may not be worth investigating is Metropolitan West Total Retail Bond M (MWTRX - Free Report) . MWTRX carries a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.
The world of Diversified Bonds funds is an area filled with options, such as MWTRX. Investors looking for exposure to a variety of fixed income types that stretch across issuers, maturities, and credit levels will find a good fit with Diversified Bonds funds. Typically, these funds have a solid amount of exposure to government debt, as well as modest holdings in the corporate bond market.
History of Fund/Manager
Metropolitan is based in Los Angeles, CA, and is the manager of MWTRX. Metropolitan West Total Retail Bond M debuted in April of 1997. Since then, MWTRX has accumulated assets of about $13.42 billion, according to the most recently available information. The fund is currently managed by a team of investment professionals.
Obviously, what investors are looking for in these funds is strong performance relative to their peers. MWTRX has a 5-year annualized total return of 2.04% and it sits 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 0.87%, which places it in the bottom 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. MWTRX's standard deviation over the past three years is 2.36% compared to the category average of 7.29%. The fund's standard deviation over the past 5 years is 2.71% compared to the category average of 3.47%. This makes the fund less volatile than its peers over the past half-decade.
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. MWTRX has a modified duration of 5.62, which suggests that the fund will decline 5.62% for every hundred-basis-point increase in interest rates.
We must remember to consider the fund's average coupon, as income is traditionally a big reason for purchasing a fixed income security. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 3.15% means that a $10,000 investment should result in a yearly payout of $315.
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.
Income is only one part of the bond picture, investors also need to consider risk relative to broad benchmarks. MWTRX carries a beta of 0.91, 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 0.17, which measures performance on a risk-adjusted basis.
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, MWTRX has 69.84% in high quality bonds rated at least 'AA' or higher, while 25.51% are of medium quality, with ratings of 'A' to 'BBB'. The fund's junk bond component--bonds rated 'BB' or below--is at 4.62%, giving MWTRX an average quality of AA. This means that it focuses on high quality securities.
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, MWTRX is a no load fund. It has an expense ratio of 0.67% compared to the category average of 0.89%. So, MWTRX is actually cheaper than its peers from a cost perspective.
This fund requires a minimum initial investment of $5,000, while there is no minimum for each subsequent investment.
Overall, Metropolitan West Total Retail Bond M has a low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, Metropolitan West Total Retail Bond M looks like a somewhat weak choice for investors right now.
For additional information on the Diversified Bonds 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 MWTRX too 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.