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Is PHYZX a Strong Bond Fund Right Now?

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There are plenty of choices in the High Yield - Bonds category, but where should you start your research? Well, one fund that might be worth investigating is Prudential High Yield Z (PHYZX). PHYZX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

PHYZX is classified in the High Yield - Bonds segment by Zacks, an area full of investment possibilities. High Yield - Bonds funds come in below investment grade, and are referred to as " junk " bonds for this reason. Compared to their investment grade peers, these funds are at a higher default risk, but typically pay out higher yields while posing similar interest rate risks.

History of Fund/Manager

PHYZX finds itself in the Prudential family, based out of Providence, RI. The Prudential High Yield Z made its debut in March of 1996 and PHYZX has managed to accumulate roughly $3.72 billion in assets, as of the most recently available information. The fund's current manager is a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 4.5%, 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 6.64%, 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. PHYZX's standard deviation over the past three years is 4.69% compared to the category average of 7.8%. The standard deviation of the fund over the past 5 years is 4.76% compared to the category average of 7.94%. 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. PHYZX has a modified duration of 4.08, which suggests that the fund will decline 4.08% 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. This metric calculates the fund's average payout in a given year. For example, this fund's average coupon of 6.61% means that a $10,000 investment should result in a yearly payout of $661.

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.

Because income is only one part of the bond picture, investors should also consider risk relative to broad benchmarks. This fund has a beta of 0.46, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, PHYZX has a positive alpha of 3.33, which measures performance on a risk-adjusted basis.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, PHYZX is a no load fund. It has an expense ratio of 0.55% compared to the category average of 1.03%. Looking at the fund from a cost perspective, PHYZX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $5 million; each subsequent investment has no minimum amount.

Bottom Line

Overall, Prudential High Yield Z ( PHYZX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Prudential High Yield Z ( PHYZX ) looks like a good potential choice for investors right now.

Want even more information about PHYZX? 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. 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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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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