Looking for a Muni - Bonds fund? You may want to consider Vanguard Intermediate-Term Tax-Exempt Investor (VWITX - Free Report) as a possible option. VWITX possesses a Zacks Mutual Fund Rank of 3 (Hold), which is based on nine forecasting factors like size, cost, and past performance.
We classify VWITX 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
Vanguard Group is based in Malvern, PA, and is the manager of VWITX. Vanguard Intermediate-Term Tax-Exempt Investor made its debut in September of 1977, and since then, VWITX has accumulated about $3.90 billion in assets, per the most up-to-date date available. The fund's current manager, James M. D'Arcy, has been in charge of the fund since June of 2013.
Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 2.24%, and is 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 1.52%, which places it in the middle 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. Over the past three years, VWITX's standard deviation comes in at 3.02%, compared to the category average of 5.83%. Over the past 5 years, the standard deviation of the fund is 3.21% compared to the category average of 3.62%. This makes the fund less volatile than its peers over the past half-decade.
Modified duration is a measure of a given bond's interest rate sensitivity, so when judging how fixed income securities will respond in a shifting rate environment, it is an excellent figure to look at.
If you believe interest rates will rise, this is an important factor to look at. VWITX has a modified duration of 5.2, which suggests that the fund will decline 5.2% for every hundred-basis-point increase in interest rates.
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 4.6% means that a $10,000 investment should result in a yearly payout of $460.
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. With a beta of 0.89, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, VWITX has a negative alpha of -0.18, 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, VWITX has 74.7% in high quality bonds rated at least 'AA' or higher, while 23.7% are of medium quality, with ratings of 'A' to 'BBB'. The fund's junk bond component--bonds rated 'BB' or below--is at 0.2%, giving VWITX an average quality of AA. This means that it focuses on high quality securities.
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, VWITX is a no load fund. It has an expense ratio of 0.19% compared to the category average of 0.88%. Looking at the fund from a cost perspective, VWITX is actually cheaper than its peers.
Investors should also note that the minimum initial investment for the product is $3,000 and that each subsequent investment needs to be at $1.
Overall, Vanguard Intermediate-Term Tax-Exempt Investor has a neutral Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, Vanguard Intermediate-Term Tax-Exempt Investor looks like a somewhat average 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.