Back to top

Image: Bigstock

Is PDINX a Strong Bond Fund Right Now?

Read MoreHide Full Article

If investors are looking at the Diversified Bonds fund category, make sure to pass over Putnam Diversified Income A (PDINX - Free Report) . PDINX carries a Zacks Mutual Fund Rank of 4 (Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

PDINX is one of many Diversified Bonds funds to choose from. Diversified Bonds funds give investors exposure to a variety of fixed income types that span across different issuers, maturities, and credit levels. Usually, these funds will have a good amount of exposure to government debt, in addition to modest holdings in the corporate bond market.

History of Fund/Manager

Putnam Funds is responsible for PDINX, and the company is based out of Canton, MA. Since Putnam Diversified Income A made its debut in October of 1988, PDINX has garnered more than $1.12 billion in assets. The fund is currently managed by a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 1.97%, and it sits in the bottom 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 6.52%, 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, PDINX's standard deviation comes in at 3.76%, compared to the category average of 8.03%. Looking at the past 5 years, the fund's standard deviation is 5% compared to the category average of 8.38%. This makes the fund less volatile than its peers over the past half-decade.

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. PDINX has a modified duration of -0.4, which suggests that the fund will decline -0.4% for every hundred-basis-point increase in interest rates.

Income

Income is often a big reason for purchasing a fixed income security, so it is important to consider the fund's average coupon. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5% means that a $10,000 investment should result in a yearly payout of $500.

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.

Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. PDINX carries a beta of -0.39, 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 2.72, 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, PDINX has 34.94% in high quality bonds rated at least 'AA' or higher, while its junk bond component-bonds rated 'BB' or below-is at 48.17%. This means that the fund has an average quality of A, and focuses on high quality securities.

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, PDINX is a load fund. It has an expense ratio of 0.98% compared to the category average of 0.90%. So, PDINX is actually more expensive than its peers from a cost perspective.

Investors should also note that the minimum initial investment for the product is $500 and that each subsequent investment has no minimum amount.

Bottom Line

Overall, Putnam Diversified Income A ( PDINX ) has a low Zacks Mutual Fund rank, similar performance, average downside risk, and higher fees compared to its peers.

For additional information on this product, or to compare it to other mutual funds in the Diversified 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.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Putnam Diversified Income A (PDINX) - free report >>

Published in