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Is VWIUX a Strong Bond Fund Right Now?

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Looking for a Muni - Bonds fund? You may want to consider Vanguard Intermediate-Term Tax-Exempt Administrative (VWIUX - Free Report) as a possible option. VWIUX carries a Zacks Mutual Fund Rank of 3 (Hold), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify VWIUX 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

VWIUX is a part of the Vanguard Group family of funds, a company based out of Malvern, PA. Vanguard Intermediate-Term Tax-Exempt Administrative debuted in February of 2001. Since then, VWIUX has accumulated assets of about $54.32 billion, according to the most recently available information. James M. D'Arcy is the fund's current manager and has held that role since June of 2013.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. VWIUX has a 5-year annualized total return of 2.53% and is in the middle 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 2.43%, 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. VWIUX's standard deviation over the past three years is 2.99% compared to the category average of 5.87%. Looking at the past 5 years, the fund's standard deviation is 3.15% 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.

For those that believe interest rates will rise, this is an important factor to consider. VWIUX has a modified duration of 5.4, which suggests that the fund will decline 5.4% for every hundred-basis-point increase in interest rates.

Income

Since income is, of course, a big reason for purchasing a fixed income security, it is always important to consider the fund's average coupon. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 4.87% means that a $10,000 investment should result in a yearly payout of $487.

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. This fund has a beta of 0.88, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, VWIUX has a negative alpha of -0.09, 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, VWIUX has 69.81% in high quality bonds rated at least 'AA' or higher, while 27.81% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of AA, and focuses on high quality securities.

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, VWIUX is a no load fund. It has an expense ratio of 0.09% compared to the category average of 0.87%. From a cost perspective, VWIUX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $50,000; each subsequent investment needs to be at least $1.

Bottom Line

Overall, Vanguard Intermediate-Term Tax-Exempt Administrative 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 Administrative 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. 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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