Markets

Is PDVYX a Strong Bond Fund Right Now?

If you have been looking for Diversified Bonds fund category, a potential starting could be Putnam Diversified Income Y (PDVYX). PDVYX possesses a Zacks Mutual Fund Rank of 3 (Hold), which is based on nine forecasting factors like size, cost, and past performance.

Objective

PDVYX is one of many Diversified Bonds funds to choose from. Diversified Bonds funds give investors exposure to a variety of fixed income types that span across different issuers, maturities, and credit levels. Usually, these funds will have a good amount of exposure to government debt, in addition to modest holdings in the corporate bond market.

History of Fund/Manager

Putnam Funds is based in Canton, MA, and is the manager of PDVYX. Since Putnam Diversified Income Y made its debut in October of 1998, PDVYX has garnered more than $2.48 billion in assets. A team of investment professionals is the fund's current manager.

Performance

Investors naturally seek funds with strong performance. This fund in particular has delivered a 5-year annualized total return of 2.71%, 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 4.1%, 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. PDVYX's standard deviation over the past three years is 4.82% compared to the category average of 7.72%. Looking at the past 5 years, the fund's standard deviation is 4.84% compared to the category average of 7.85%. This makes the fund less 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.

If you believe interest rates will rise, this is an important factor to look at. PDVYX has a modified duration of 2.79, which suggests that the fund will decline 2.79% 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. This metric calculates the fund's average payout in a given year. For example, this fund's average coupon of 4.99% means that a $10,000 investment should result in a yearly payout of $499.

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. With a beta of -0.62, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, PDVYX has a positive alpha of 3.34, 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, PDVYX has 33.09% in high quality bonds rated at least 'AA' or higher, while its junk bond component-bonds rated 'BB' or below-is at 49.06%. This means that the fund has an average quality of BBB, and focuses on medium quality securities.

Expenses

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, PDVYX is a no load fund. It has an expense ratio of 0.74% compared to the category average of 0.91%. PDVYX is actually cheaper than its peers when you consider factors like cost.

Investors should also note that the minimum initial investment for the product is $0 and that each subsequent investment has no minimum amount.

Bottom Line

Overall, Putnam Diversified Income Y ( PDVYX ) has a neutral Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a somewhat average choice for investors right now.

Want even more information about PDVYX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis 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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Get Your Free (PDVYX): Fund Analysis Report

To read this article on Zacks.com click here.

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.

In This Story

PDVYX

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More