Investment Grade Bond - Intermediate fund seekers should not consider taking a look at PIMCO Total Return Institutional (PTTRX) at this time. PTTRX carries a Zacks Mutual Fund Rank of 5 (Strong Sell), which is based on nine forecasting factors like size, cost, and past performance.
We classify PTTRX in the Investment Grade Bond - Intermediate category, an area rife with potential choices. Investment Grade Bond - Intermediate funds target the middle part of the curve, typically by investing in bonds that mature in more than three years but less than 15 years. At these maturity levels, fixed income instruments have medium duration risk--but they compensate investors with a respectable yield compared to shorter maturity options. Finally, a focus on investment grade ensures that these funds are safer, but yields will be lower than in the junk bond category.
History of Fund/Manager
PIMCO Funds is responsible for PTTRX, and the company is based out of Newport Beach, CA. Since PIMCO Total Return Institutional made its debut in May of 1987, PTTRX has garnered more than $49.87 billion in assets. The fund's current manager is a team of investment professionals.
Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 2.74%, 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 2.71%, 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. Compared to the category average of 7.89%, the standard deviation of PTTRX over the past three years is 2.75%. Looking at the past 5 years, the fund's standard deviation is 2.94% compared to the category average of 8.21%. This makes the fund less volatile than its peers over the past half-decade.
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.
If you believe interest rates will rise, this is an important factor to look at. PTTRX has a modified duration of 3.47, which suggests that the fund will decline 3.47% for every hundred-basis-point increase in interest rates.
We must remember to consider the fund's average coupon, as income is traditionally a big reason for purchasing a fixed income security. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.16% means that a $10,000 investment should result in a yearly payout of $416.
While a higher coupon is good for when you want a strong level of current income, it could present 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. PTTRX carries a beta of 0.86, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.31, 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, PTTRX has 57.33% in high quality bonds rated at least 'AA' or higher, while 35.99% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of AA, and focuses on high quality securities.
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, PTTRX is a no load fund. It has an expense ratio of 0.46% compared to the category average of 0.82%. From a cost perspective, PTTRX is actually cheaper than its peers.
While the minimum initial investment for the product is $1 million, investors should also note that there is no minimum for each subsequent investment.
Overall, PIMCO Total Return Institutional ( PTTRX ) has a low Zacks Mutual Fund rank, strong performance, better downside risk, and lower fees compared to its peers.
This could just be the start of your research on PTTRXin the Investment Grade Bond - Intermediate category. Consider going to www.zacks.com/funds/mutual-funds for additional information about this fund, and all the others that we rank 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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