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Is FHAIX a Strong Bond Fund Right Now?

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If investors are looking at the High Yield - Bonds fund category, make sure to pass over Franklin High Income A (FHAIX - Free Report) . FHAIX carries a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

FHAIX is classified in the High Yield - Bonds segment by Zacks, an area full of investment possibilities. High Yield - Bonds funds come in below investment grade, and are referred to as " junk " bonds for this reason. Compared to their investment grade peers, these funds are at a higher default risk, but typically pay out higher yields while posing similar interest rate risks.

History of Fund/Manager

Franklin Templeton is based in San Mateo, CA, and is the manager of FHAIX. Franklin High Income A debuted in December of 1969. Since then, FHAIX has accumulated assets of about $2.42 billion, according to the most recently available information. Christopher Molumphy is the fund's current manager and has held that role since December of 1991.

Performance

Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 3.02%, and it sits in the bottom third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 3.02%, 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. The standard deviation of FHAIX over the past three years is 7.41% compared to the category average of 7.93%. The fund's standard deviation over the past 5 years is 6.72% compared to the category average of 7.85%. 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 those that believe interest rates will rise, this is an important factor to consider. FHAIX has a modified duration of 3.68, which suggests that the fund will decline 3.68% for every hundred-basis-point increase in interest rates.

Income

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 6.38% means that a $10,000 investment should result in a yearly payout of $638.

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.

Because income is only one part of the bond picture, investors should also consider risk relative to broad benchmarks. This fund has a beta of 0.47, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, FHAIX has a positive alpha of 2.31, which measures performance on a risk-adjusted basis.

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, FHAIX is a load fund. It has an expense ratio of 0.78% compared to the category average of 1.03%. Looking at the fund from a cost perspective, FHAIX is actually cheaper than its peers.

Investors should also note that the minimum initial investment for the product is $1,000 and that each subsequent investment has no minimum amount.

Bottom Line

Overall, Franklin High Income A has a low Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, Franklin High Income A looks like a somewhat weak choice for investors right now.

Don't stop here for your research on High Yield - 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 FHAIX to its peers as well for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.




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