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Is BHYIX a Strong Bond Fund Right Now?

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On the lookout for a High Yield - Bonds fund? Starting with BlackRock High Yield Bond Institutional (BHYIX - Free Report) is one possibility. BHYIX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

BHYIX is classified in the High Yield - Bonds segment by Zacks, an area full of investment possibilities. High Yield - Bonds funds come in below investment grade, and are referred to as " junk " bonds for this reason. Compared to their investment grade peers, these funds are at a higher default risk, but typically pay out higher yields while posing similar interest rate risks.

History of Fund/Manager

BHYIX is a part of the BlackRock family of funds, a company based out of New York, NY. BlackRock High Yield Bond Institutional debuted in November of 1998. Since then, BHYIX has accumulated assets of about $10.27 billion, according to the most recently available information. The fund's current manager is a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 3.55%, and is 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 7.44%, 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, BHYIX's standard deviation comes in at 4.56%, compared to the category average of 8.51%. The standard deviation of the fund over the past 5 years is 5.37% compared to the category average of 8.78%. 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, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.

For those that believe interest rates will rise, this is an important factor to consider. BHYIX has a modified duration of 3.5, which suggests that the fund will decline 3.5% 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. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 6.51% means that a $10,000 investment should result in a yearly payout of $651.

If you are looking for a strong level of current income, a higher coupon is a good choice, though it could pose a reinvestment risk; these risks can occur 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 0.1, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, BHYIX has a positive alpha of 2.48, 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, BHYIX 's junk bond component-bonds rated 'BB' or below-is at 94.56%. This means that the fund has an average quality of BBB, and focuses on medium quality securities.

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, BHYIX is a no load fund. It has an expense ratio of 0.60% compared to the category average of 1.02%. BHYIX is actually cheaper than its peers when you consider factors like cost.

While the minimum initial investment for the product is $2 million, investors should also note that there is no minimum for each subsequent investment.

Bottom Line

Overall, BlackRock High Yield Bond Institutional ( BHYIX ) has a high Zacks Mutual Fund rank, similar performance, average 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. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.


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