Technology

Is USATX a Strong Bond Fund Right Now?

If you have been looking for Muni - Bonds funds, a place to start could be USAA Tax-Exempt Intermediate-Term (USATX). USATX possesses a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify USATX in the Muni - Bonds category, an area rife with potential choices. Muni - Bonds funds focus their investments on debt securities issued by state and local governments. These are typically used to pay for the construction of infrastructure, the operation of public schools, and other municipal functions. These securities can come in the form of revenue bonds, which are backed by taxes, as well as " general obligation " bonds that are not backed by a defined source. Investors are usually interested that come with most municipal bonds, which can be especially important for those in higher tax brackets.

History of Fund/Manager

USATX finds itself in the USAA Group family, based out of San Antonio, TX. Since USAA Tax-Exempt Intermediate-Term made its debut in March of 1982, USATX has garnered more than $5 billion in assets. The fund is currently managed by Regina G. Conklin who has been in charge of the fund since June of 2003.

Performance

Of course, investors look for strong performance in funds. USATX has a 5-year annualized total return of 3.07% and is in the middle 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 3.26%, 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. USATX's standard deviation over the past three years is 3.31% compared to the category average of -3.43%. The standard deviation of the fund over the past 5 years is 2.87% compared to the category average of -3.21%. This makes the fund more 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. USATX has a modified duration of 5.41, which suggests that the fund will decline 5.41% 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 4.5% means that a $10,000 investment should result in a yearly payout of $450.

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. This fund has a beta of 0.82, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, USATX has a negative alpha of -0.28, 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, USATX has 30.51% in high quality bonds rated at least 'AA' or higher, while 61.9% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of A, and focuses on high quality securities.

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, USATX is a no load fund. It has an expense ratio of 0.52% compared to the category average of 0.40%. USATX is actually more expensive than its peers when you consider factors like cost.

While the minimum initial investment for the product is $3,000, investors should also note that each subsequent investment needs to be at least $50.

Bottom Line

Overall, USAA Tax-Exempt Intermediate-Term ( USATX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, worse downside risk, and higher fees, USAA Tax-Exempt Intermediate-Term ( USATX ) looks like a good potential choice for investors right now.

This could just be the start of your research on USATXin the Muni - Bonds 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. 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.

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