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Is HICOX a Strong Bond Fund Right Now?

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If you have been looking for Muni - Bonds funds, a place to start could be Colorado Bond Shares Tax-Exempt A (HICOX). HICOX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

Zacks categorizes HICOX 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

Freedom Funds is responsible for HICOX, and the company is based out of Denver, CO. Since Colorado Bond Shares Tax-Exempt A made its debut in June of 1987, HICOX has garnered more than $1.20 billion in assets. Fred R. Kelly Jr. Is the fund's current manager and has held that role since November of 1990.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund carries a 5-year annualized total return of 4.51%, and is in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 4.28%, 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 HICOX over the past three years is 1.67% compared to the category average of 3.04%. The standard deviation of the fund over the past 5 years is 4.16% compared to the category average of 2.97%. 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.

If you believe interest rates will rise, this is an important factor to look at. HICOX has a modified duration of 6.1, which suggests that the fund will decline 6.1% for every hundred-basis-point increase in interest rates.

Income

Since income is, of course, a big reason for purchasing a fixed income security, it is always important to consider the fund's average coupon. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 5.01% means that a $10,000 investment should result in a yearly payout of $501.

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 0.41, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, HICOX has a positive alpha of 2.79, 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, HICOX has 41.68% in high quality bonds rated at least 'AA' or higher, while 35.6% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of A, and focuses on high quality securities.

However, it is worth noting that 22 % of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.

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, HICOX is a load fund. It has an expense ratio of 0.56% compared to the category average of 0.86%. Looking at the fund from a cost perspective, HICOX is actually cheaper than its peers.

While the minimum initial investment for the product is $500, investors should also note that there is no minimum for each subsequent investment.

Bottom Line

Overall, Colorado Bond Shares Tax-Exempt A ( HICOX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

Your research on the Muni - Bonds 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. For analysis of the rest of your portfolio, make sure to visit Zacks.com for our full suite of tools which will help you investigate all of your stocks and funds in one place.

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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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