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Is RPSIX a Strong Bond Fund Right Now?

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If you've been stuck searching for Diversified Bonds funds, consider T. Rowe Price Spectrum Income (RPSIX - Free Report) as a possibility. RPSIX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify RPSIX in the Diversified Bonds category, an area that is rife with potential choices. Diversified Bonds funds offer exposure to a wide variety of fixed income types, stretching across various issuers, credit levels, and maturities. Generally speaking, bond funds here will have sizable exposure to government debt, as well as modest holdings in the corporate bond market too.

History of Fund/Manager

RPSIX is a part of the T. Rowe Price family of funds, a company based out of Baltimore, MD. T. Rowe Price Spectrum Income debuted in June of 1990. Since then, RPSIX has accumulated assets of about $6.80 billion, according to the most recently available information. The fund's current manager, Charles M. Shriver, has been in charge of the fund since May of 2011.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. RPSIX has a 5-year annualized total return of 3.05% 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 3.26%, which places it in the top 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, RPSIX's standard deviation comes in at 3.69%, compared to the category average of 3.26%. Over the past 5 years, the standard deviation of the fund is 3.73% compared to the category average of 3.45%. 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, so when judging how fixed income securities will respond in a shifting rate environment, it is an excellent figure to look at.

For those that believe interest rates will rise, this is an important factor to consider. RPSIX has a modified duration of 5.3, which suggests that the fund will decline 5.3% 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 takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.42% means that a $10,000 investment should result in a yearly payout of $442.

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.

Income is only one part of the bond picture, investors also need to consider risk relative to broad benchmarks. This fund has a beta of 0.74, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, RPSIX has a positive alpha of 1.88, 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, RPSIX has 39.34% in high quality bonds rated at least 'AA' or higher, while 27.36% are of medium quality, with ratings of 'A' to 'BBB'. The fund's junk bond component-bonds rated 'BB' or below-is at 31.25%, giving RPSIX an average quality of A. This means that it 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, RPSIX is a no load fund. It has an expense ratio of 0.65% compared to the category average of 0.92%. RPSIX is actually cheaper than its peers when you consider factors like cost.

Investors need to be aware that with this product, the minimum initial investment is $2,500; each subsequent investment needs to be at least $100.

Bottom Line

Overall, T. Rowe Price Spectrum Income has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

Don't stop here for your research on Diversified Bonds funds. We also have plenty more on our site in order to help you find the best possible fund for your portfolio. Make sure to check out www.zacks.com/funds/mutual-funds for more information about the world of funds, and feel free to compare RPSIX to its peers as well for additional information. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.




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