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Is MDCMX a Strong Bond Fund Right Now?

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Muni - Bonds fund seekers should not consider taking a look at BlackRock CA Municipals Opportunities A1 (MDCMX - Free Report) at this time. MDCMX has a Zacks Mutual Fund Rank of 5 (Strong Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

Zacks categorizes MDCMX as Muni - Bonds, which is a segment packed with options. Muni - Bonds funds invest in debt securities issued by states or local municipalities. These are generally used to finance construction of infrastructure, pay for schools, or other government functions. Some are backed by taxes (revenue bonds), while others are " general obligation " and may not be backed by a defined source. Investors usually appreciate the tax benefits that come with many municipal bonds, which are especially impressive for those in high tax brackets.

History of Fund/Manager

BlackRock is based in New York, NY, and is the manager of MDCMX. BlackRock CA Municipals Opportunities A1 made its debut in October of 1994, and since then, MDCMX has accumulated about $112.54 million in assets, per the most up-to-date date available. The fund is currently managed by a team of investment professionals.

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 3.91%, 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 3.4%, 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. MDCMX's standard deviation over the past three years is 3.25% compared to the category average of 7.71%. The fund's standard deviation over the past 5 years is 2.77% compared to the category average of 7.96%. 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 investors who think interest rates will rise, this is an important factor to consider. MDCMX has a modified duration of 2.87, which suggests that the fund will decline 2.87% 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. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5.06% means that a $10,000 investment should result in a yearly payout of $506.

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.

Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. With a beta of 0.66, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, MDCMX has a positive alpha of 0.85, which measures performance on a risk-adjusted basis.

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, MDCMX is a no load fund. It has an expense ratio of 0.54% compared to the category average of 0.85%. From a cost perspective, MDCMX is actually cheaper than its peers.

This fund requires a minimum initial investment of $0, while there is no minimum for each subsequent investment.

Bottom Line

Overall, BlackRock CA Municipals Opportunities A1 ( MDCMX ) has a low Zacks Mutual Fund rank, strong performance, better 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. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.


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