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Is VWITX a Strong Bond Fund Right Now?

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If you have been looking for Muni - Bonds funds, a place to start could be Vanguard Intermediate-Term Tax-Exempt Investor (VWITX - Free Report) . VWITX possesses a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

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 responsible for VWITX, and the company is based out of Malvern, PA. Vanguard Intermediate-Term Tax-Exempt Investor made its debut in September of 1977, and since then, VWITX has accumulated about $3.43 billion in assets, per the most up-to-date date available. The fund is currently managed by James M. D'Arcy who has been in charge of the fund since June of 2013.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 2.84%, 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 1.76%, 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. The standard deviation of VWITX over the past three years is 3.05% compared to the category average of 5.77%. The standard deviation of the fund over the past 5 years is 2.77% compared to the category average of 5.81%. 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, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.

For investors who think interest rates will rise, this is an important factor to consider. VWITX has a modified duration of 5.1, which suggests that the fund will decline 5.1% 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. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 4.82% means that a $10,000 investment should result in a yearly payout of $482.

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 0.95, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, VWITX has a negative alpha of -0.36, 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, VWITX has 67.39% in high quality bonds rated at least 'AA' or higher, while 30.31% 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

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, VWITX is a no load fund. It has an expense ratio of 0.19% compared to the category average of 0.86%. 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.

Bottom Line

Overall, Vanguard Intermediate-Term Tax-Exempt Investor ( VWITX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, this fund looks like a great 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. 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.




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