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Is USATX a Strong Bond Fund Right Now?

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If you've been stuck searching for Muni - Bonds funds, consider USAA Tax-Exempt Intermediate-Term (USATX - Free Report) as a possibility. USATX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

USATX is one of many Muni - Bonds funds to choose from. Muni - Bonds funds invest in debt securities issued by states and local municipalities, which are typically used to pay for infrastructure construction, schools, and other government functions. These securities can be backed by taxes (revenue bonds), but others are known as " general obligation " and are not necessarily backed by a defined source. These bonds are especially attractive because of their inherent tax benefits.

History of Fund/Manager

USAA Group is responsible for USATX, and the company is based out of San Antonio, TX. The USAA Tax-Exempt Intermediate-Term made its debut in March of 1982 and USATX has managed to accumulate roughly $4.67 billion in assets, as of the most recently available information. The fund's current manager, Regina G. Conklin, has been in charge of the fund since June of 2003.

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 2.99%, and it sits 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 2.27%, 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 USATX over the past three years is 3.32% compared to the category average of 5.98%. Over the past 5 years, the standard deviation of the fund is 2.8% compared to the category average of 6.05%. 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, so when judging how fixed income securities will respond in a shifting rate environment, it is an excellent figure to look at.

For those that believe interest rates will rise, this is an important factor to consider. USATX has a modified duration of 5.41, which suggests that the fund will decline 5.41% 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. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 4.5% means that a $10,000 investment should result in a yearly payout of $450.

For those seeking a strong level of current income, a higher coupon is typically good news. However, it could 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. USATX carries a beta of 0.95, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a negative 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, USATX has 30.51% in high quality bonds rated at least 'AA' or higher, while 61.9% 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

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, USATX is a no load fund. It has an expense ratio of 0.52% compared to the category average of 0.85%. From a cost perspective, USATX 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 $50.

Bottom Line

Overall, USAA Tax-Exempt Intermediate-Term ( USATX ) has a high Zacks Mutual Fund rank, similar performance, average downside risk, and lower fees compared to its peers.

Your research on the Muni - Bonds 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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