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Is VAIPX a Strong Bond Fund Right Now?

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If you've been stuck searching for Government - Bonds: Misc funds, consider Vanguard Inflation Pro Security Admiral (VAIPX - Free Report) as a possibility. VAIPX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We note that VAIPX is a Government - Bonds: Misc option, and this area is loaded with many different choices. Often seen as risk-free assets and described as extremely low-risk from a default perspective, Government - Bonds: Misc funds hold securities issued by the United States' federal government. This category stretches across the curve, meaning the yields and interest rate sensitivity will vary, but a mixed approach can typically result in a medium yield and risk profile.

History of Fund/Manager

Vanguard Group is based in Malvern, PA, and is the manager of VAIPX. Vanguard Inflation Pro Security Admiral made its debut in June of 2005, and since then, VAIPX has accumulated about $14.23 billion in assets, per the most up-to-date date available. Gemma Wright Casparius is the fund's current manager and has held that role since August of 2011.

Performance

Of course, investors look for strong performance in funds. This fund has delivered a 5-year annualized total return of 2.16%, and it sits 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 2.93%, 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. The standard deviation of VAIPX over the past three years is 2.93% compared to the category average of 0.33%. Over the past 5 years, the standard deviation of the fund is 3.51% compared to the category average of -3.84%. This makes the fund more 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 investors who think interest rates will rise, this is an important factor to consider. VAIPX has a modified duration of 7.58, which suggests that the fund will decline 7.58% 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. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 0.86% means that a $10,000 investment should result in a yearly payout of $86.

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 0.9, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, VAIPX has a negative alpha of -0.86, 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, VAIPX is a no load fund. It has an expense ratio of 0.10% compared to the category average of 0.32%. So, VAIPX is actually cheaper than its peers from a cost perspective.

This fund requires a minimum initial investment of $50,000, and each subsequent investment should be at least $1.

Bottom Line

Overall, Vanguard Inflation Pro Security Admiral ( VAIPX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, worse downside risk, and lower fees, Vanguard Inflation Pro Security Admiral ( VAIPX ) looks like a good potential choice for investors right now.

Your research on the Government - Bonds: Misc 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. And don't forget, Zacks has all of your needs covered on the equity side too! Make sure to check out Zacks.com for more information on our screening capabilities, Rank, and all our articles as well.


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