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Is VWEAX a Strong Bond Fund Right Now?

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If you have been looking for High Yield - Bonds funds, a place to start could be Vanguard High-Yield Corporate Admiral (VWEAX - Free Report) . VWEAX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

VWEAX is part of the High Yield - Bonds section, which is a segment that boasts many possible options. Often referred to as " junk " bonds, High Yield - Bonds funds sit below investment grade, meaning they are at a high default risk compared to their investment grade peers. However, one advantage to junk bonds is that they generally pay out higher yields while posing similar interest rate risks to their investment grade counterparts.

History of Fund/Manager

Vanguard Group is based in Malvern, PA, and is the manager of VWEAX. The Vanguard High-Yield Corporate Admiral made its debut in November of 2001 and VWEAX has managed to accumulate roughly $19.29 billion in assets, as of the most recently available information. The fund's current manager, Michael L. Hong, has been in charge of the fund since February of 2008.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. VWEAX has a 5-year annualized total return of 4.51% 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 7.06%, 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 VWEAX over the past three years is 4.54% compared to the category average of -23.72%. The fund's standard deviation over the past 5 years is 4.65% compared to the category average of -25.69%. 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, 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. VWEAX has a modified duration of 4.5, which suggests that the fund will decline 4.5% 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 calculates the fund's average payout in a given year. For example, this fund's average coupon of 5.7% means that a $10,000 investment should result in a yearly payout of $570.

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.

Since income is just one part of the bond picture, investors need to consider risk relative to broad benchmarks. VWEAX carries a beta of 0.41, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 3.11, which measures performance on a risk-adjusted basis.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, VWEAX is a no load fund. It has an expense ratio of 0.13% compared to the category average of 0.35%. So, VWEAX is actually cheaper than its peers from a cost perspective.

This fund requires a minimum initial investment of $50,000, and each subsequent investment should be at least $1.

Bottom Line

Overall, Vanguard High-Yield Corporate Admiral ( VWEAX ) has a high Zacks Mutual Fund rank, strong performance, worse downside risk, and lower fees compared to its peers.

For additional information on this product, or to compare it to other mutual funds in the High Yield - 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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