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Is LFRAX a Strong Bond Fund Right Now?

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If you have been looking for Government - Bonds: Misc fund category, a potential starting could be Lord Abbett Floating Rate A (LFRAX - Free Report) . LFRAX 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 LFRAX in the Government - Bonds: Misc category, an area rife with potential choices. Government - Bonds: Misc funds hold securities issued by the federal government of the United States of America. These are seen as extremely low risk securities from a default perspective, and are often regarded as risk-free assets. This category stretches across the curve, so the yields and interest rate sensitivity will vary, though a mixed approach generally results in a medium yield and risk profile.

History of Fund/Manager

Lord Abbett is based in Jersey City, NJ, and is the manager of LFRAX. Lord Abbett Floating Rate A debuted in December of 2007. Since then, LFRAX has accumulated assets of about $3.65 billion, according to the most recently available information. A team of investment professionals is the fund's current manager.

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 3.14%, and it sits in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 4.74%, which places it in the top third during this time-frame.

Bond Duration

Modified duration is a measure of a specific bond's interest rate sensitivity, and is an excellent way to judge how fixed income securities will respond to a shifting rate environment.

If you believe interest rates will rise, this is an important factor to look at. LFRAX has a modified duration of 0.2, which suggests that the fund will decline 0.2% 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. This metric calculates the fund's average payout in a given year. For example, this fund's average coupon of 6.11% means that a $10,000 investment should result in a yearly payout of $611.

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 -0.23, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, LFRAX has a positive alpha of 2.65, 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, LFRAX is a load fund. It has an expense ratio of 0.79% compared to the category average of 0.91%. Looking at the fund from a cost perspective, LFRAX is actually cheaper than its peers.

While the minimum initial investment for the product is $1,500, investors should also note that there is no minimum for each subsequent investment.

Bottom Line

With a rank of 'hold' we aren't getting a good signal one way or another on LFRAX. That is why it might be a good idea to consider other items, such as the fund's expense ratio of 0.79%, and how this compares to other potential options being considered for investment. If cheaper, it might make a decent choice, but a more expensive fund might be worth avoiding. Just make sure to pay attention to its rank in case it shifts in the near future.

Your research on the Government - Bonds: Misc segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.


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