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Is FIHBX a Strong Bond Fund Right Now?

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High Yield - Bonds fund seekers should consider taking a look at Federated Institutional High Yield Bond (FIHBX). FIHBX bears 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 FIHBX is a High Yield - Bonds option, which is an area loaded with different investment choices. High Yield - Bonds funds are often known as " junk " bonds since they are below investment grade. This means they are at an elevated risk of default, at least when compared to their investment grade peers. On the plus side, junk bonds generally pay out higher yields, all while posing similar interest rate risks as we see with their investment grade counterparts.

History of Fund/Manager

Federated is responsible for FIHBX, and the company is based out of Pittsburgh, PA. Federated Institutional High Yield Bond made its debut in November of 2002, and since then, FIHBX has accumulated about $4.74 billion in assets, per the most up-to-date date available. The fund is currently managed by Mark E. Durbiano who has been in charge of the fund since November of 2002.

Performance

Of course, investors look for strong performance in funds. This fund has delivered a 5-year annualized total return of 3.74%, 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 6.22%, 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. Compared to the category average of -20.52%, the standard deviation of FIHBX over the past three years is 4.38%. The standard deviation of the fund over the past 5 years is 4.81% compared to the category average of -25.69%. This makes the fund more 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.

For investors who think interest rates will rise, this is an important factor to consider. FIHBX has a modified duration of 4.1, which suggests that the fund will decline 4.1% for every hundred-basis-point increase in interest rates.

Income

It is important to consider the fund's average coupon because income is often 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 6.27% means that a $10,000 investment should result in a yearly payout of $627.

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.

Because income is only one part of the bond picture, investors should also consider risk relative to broad benchmarks. FIHBX carries a beta of 0.34, 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 2.5, 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, FIHBX is a no load fund. It has an expense ratio of 0.49% compared to the category average of 0.26%. FIHBX is actually more expensive than its peers when you consider factors like cost.

Investors should also note that the minimum initial investment for the product is $1 million and that each subsequent investment has no minimum amount.

Bottom Line

Overall, Federated Institutional High Yield Bond ( FIHBX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, worse downside risk, and higher fees, this fund 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 High Yield - Bonds, make sure to go to www.zacks.com/funds/mutual-funds for additional information. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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