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There are plenty of choices in the Muni - Bonds category, but where should you start your research? Well, one fund that might be worth investigating is USAA California Bond (USCBX - Free Report) . USCBX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
Zacks categorizes USCBX as Muni - Bonds, which is a segment packed with options. Muni - Bonds funds invest in debt securities issued by states or local municipalities. These are generally used to finance construction of infrastructure, pay for schools, or other government functions. Some are backed by taxes (revenue bonds), while others are " general obligation " and may not be backed by a defined source. Investors usually appreciate the tax benefits that come with many municipal bonds, which are especially impressive for those in high tax brackets.
History of Fund/Manager
USAA Group is based in San Antonio, TX, and is the manager of USCBX. USAA California Bond made its debut in August of 1989, and since then, USCBX has accumulated about $689.48 million in assets, per the most up-to-date date available. The fund's current manager, John C. Bonnell, has been in charge of the fund since August of 2006.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. USCBX has a 5-year annualized total return of 3.13% and it sits in the top third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 2.6%, 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. USCBX's standard deviation over the past three years is 3.01% compared to the category average of 5.87%. Looking at the past 5 years, the fund's standard deviation is 4.06% compared to the category average of 6.06%. This makes the fund less 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.
If you believe interest rates will rise, this is an important factor to look at. USCBX has a modified duration of 6.25, which suggests that the fund will decline 6.25% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.56% means that a $10,000 investment should result in a yearly payout of $456.
A higher coupon is good for those seeking a strong level of current income, but it could also pose 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. With a beta of 0.89, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, USCBX has a positive alpha of 0, which measures performance on a risk-adjusted basis.
Expenses
For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, USCBX is a no load fund. It has an expense ratio of 0.49% compared to the category average of 0.87%. USCBX is actually cheaper than its peers when you consider factors like cost.
While the minimum initial investment for the product is $3,000, investors should also note that each subsequent investment needs to be at least $50.
Bottom Line
Overall, USAA California Bond 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.
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. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.
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Is USCBX a Strong Bond Fund Right Now?
There are plenty of choices in the Muni - Bonds category, but where should you start your research? Well, one fund that might be worth investigating is USAA California Bond (USCBX - Free Report) . USCBX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
Zacks categorizes USCBX as Muni - Bonds, which is a segment packed with options. Muni - Bonds funds invest in debt securities issued by states or local municipalities. These are generally used to finance construction of infrastructure, pay for schools, or other government functions. Some are backed by taxes (revenue bonds), while others are " general obligation " and may not be backed by a defined source. Investors usually appreciate the tax benefits that come with many municipal bonds, which are especially impressive for those in high tax brackets.
History of Fund/Manager
USAA Group is based in San Antonio, TX, and is the manager of USCBX. USAA California Bond made its debut in August of 1989, and since then, USCBX has accumulated about $689.48 million in assets, per the most up-to-date date available. The fund's current manager, John C. Bonnell, has been in charge of the fund since August of 2006.
Performance
Obviously, what investors are looking for in these funds is strong performance relative to their peers. USCBX has a 5-year annualized total return of 3.13% and it sits in the top third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 2.6%, 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. USCBX's standard deviation over the past three years is 3.01% compared to the category average of 5.87%. Looking at the past 5 years, the fund's standard deviation is 4.06% compared to the category average of 6.06%. This makes the fund less 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.
If you believe interest rates will rise, this is an important factor to look at. USCBX has a modified duration of 6.25, which suggests that the fund will decline 6.25% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.56% means that a $10,000 investment should result in a yearly payout of $456.
A higher coupon is good for those seeking a strong level of current income, but it could also pose 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. With a beta of 0.89, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, USCBX has a positive alpha of 0, which measures performance on a risk-adjusted basis.
Expenses
For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, USCBX is a no load fund. It has an expense ratio of 0.49% compared to the category average of 0.87%. USCBX is actually cheaper than its peers when you consider factors like cost.
While the minimum initial investment for the product is $3,000, investors should also note that each subsequent investment needs to be at least $50.
Bottom Line
Overall, USAA California Bond 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.
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. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.