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Is VWAHX a Strong Bond Fund Right Now?

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On the lookout for a Muni - Bonds fund? Starting with Vanguard High-Yield Tax-Exempt Investor (VWAHX - Free Report) is one possibility. VWAHX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.


Zacks categorizes VWAHX 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

VWAHX is a part of the Vanguard Group family of funds, a company based out of Malvern, PA. Vanguard High-Yield Tax-Exempt Investor made its debut in December of 1978, and since then, VWAHX has accumulated about $2.22 billion in assets, per the most up-to-date date available. The fund is currently managed by Mathew M. Kiselak who has been in charge of the fund since July of 2010.


Investors naturally seek funds with strong performance. VWAHX has a 5-year annualized total return of 4.85% and is in the top 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 3.69%, 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. VWAHX's standard deviation over the past three years is 3.82% compared to the category average of 6.18%. Over the past 5 years, the standard deviation of the fund is 3.39% compared to the category average of 6.12%. 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. VWAHX has a modified duration of 7.07, which suggests that the fund will decline 7.07% for every hundred-basis-point increase in interest rates.


Income is often a big reason for purchasing a fixed income security, so it is important to consider the fund's average coupon. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5.02% means that a $10,000 investment should result in a yearly payout of $502.

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. VWAHX carries a beta of 1.07, meaning that the fund is more volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.72, which measures performance on a risk-adjusted basis.


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, VWAHX has 25.56% in high quality bonds rated at least 'AA' or higher, while 58.18% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of A, and focuses on high quality securities.


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, VWAHX is a no load fund. It has an expense ratio of 0.17% compared to the category average of 0.85%. Looking at the fund from a cost perspective, VWAHX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $3,000; each subsequent investment needs to be at least $1.

Bottom Line

Overall, Vanguard High-Yield Tax-Exempt Investor ( VWAHX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Vanguard High-Yield Tax-Exempt Investor ( VWAHX ) looks like a good potential choice for investors right now.

For additional information on this product, or to compare it to other mutual funds in the Muni - Bonds, make sure to go to 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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