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Is VFSTX a Strong Bond Fund Right Now?

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If you've been stuck searching for Investment Grade Bond - Short funds, consider Vanguard Short-Term Investor Growth Income Investor (VFSTX - Free Report) as a possibility. VFSTX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

VFSTX is part of the Investment Grade Bond - Short category, a segment that boasts an array of other possible selections. Investment Grade Bond - Short funds target the short end of the curve by focusing on bonds that mature in less than two years. Fixed income instruments with this maturity level typically have low duration risk and pay out small yields, at least in comparison to their longer-dated peers. Also, these funds tend to be safer because of their focus on investment grade, but yields will be lower than could be found in the junk bond category.

History of Fund/Manager

VFSTX finds itself in the Vanguard Group family, based out of Malvern, PA. Since Vanguard Short-Term Investor Growth Income Investor made its debut in October of 1982, VFSTX has garnered more than $7.85 billion in assets. Samuel C. Martinez is the fund's current manager and has held that role since April of 2018.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund carries a 5-year annualized total return of 1.7%, and it sits in the top 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 1.96%, 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, VFSTX's standard deviation comes in at 1.31%, compared to the category average of -2.14%. Over the past 5 years, the standard deviation of the fund is 1.21% compared to the category average of -2.66%. 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 investors who think interest rates will rise, this is an important factor to consider. VFSTX has a modified duration of 2.6, which suggests that the fund will decline 2.6% 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 calculates the fund's average payout in a given year. For example, this fund's average coupon of 2.3% means that a $10,000 investment should result in a yearly payout of $230.

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.

Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. With a beta of 0.4, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, VFSTX has a positive alpha of 0.33, 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, VFSTX has 42.7% in high quality bonds rated at least 'AA' or higher, while 52.8% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of A, 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, VFSTX is a no load fund. It has an expense ratio of 0.20% compared to the category average of 1.14%. Looking at the fund from a cost perspective, VFSTX 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 Short-Term Investor Growth Income Investor ( VFSTX ) has a high Zacks Mutual Fund rank, strong performance, average downside risk, and lower fees compared to its peers.

Don't stop here for your research on Investment Grade Bond - Short 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 VFSTX to its peers as well 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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