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Is VAIPX a Strong Bond Fund Right Now?

On the lookout for a Government - Bonds: Misc fund? Starting with Vanguard Inflation Pro Security Admiral (VAIPX) is one possibility. VAIPX carries a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify VAIPX in the Government - Bonds: Misc category, an area rife with potential choices. Government - Bonds: Misc funds hold securities issued by the federal government of the United States of America. These are seen as extremely low risk securities from a default perspective, and are often regarded as risk-free assets. This category stretches across the curve, so the yields and interest rate sensitivity will vary, though a mixed approach generally results in a medium yield and risk profile.

History of Fund/Manager

Vanguard Group is based in Malvern, PA, and is the manager of VAIPX. Vanguard Inflation Pro Security Admiral debuted in June of 2005. Since then, VAIPX has accumulated assets of about $14.06 billion, according to the most recently available information. Gemma Wright Casparius is the fund's current manager and has held that role since August of 2011.

Performance

Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 1.56%, and it sits 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 2.34%, 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. VAIPX's standard deviation over the past three years is 3.18% compared to the category average of 7.02%. The fund's standard deviation over the past 5 years is 3.54% compared to the category average of 7.42%. 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, so when judging how fixed income securities will respond in a shifting rate environment, it is an excellent figure to look at.

For those that believe interest rates will rise, this is an important factor to consider. VAIPX has a modified duration of 7.58, which suggests that the fund will decline 7.58% 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 takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 0.86% means that a $10,000 investment should result in a yearly payout of $86.

A higher coupon is good for those seeking a strong level of current income, but it could also pose 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. VAIPX carries a beta of 0.92, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a negative alpha of -1.11, 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, VAIPX is a no load fund. It has an expense ratio of 0.10% compared to the category average of 0.81%. Looking at the fund from a cost perspective, VAIPX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $50,000; each subsequent investment needs to be at least $1.

Bottom Line

Overall, Vanguard Inflation Pro Security Admiral ( VAIPX ) has a high Zacks Mutual Fund rank, strong performance, average downside risk, and lower fees compared to its peers.

For additional information on the Government - Bonds: Misc area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into VAIPX too for additional information. If you want to check out our stock reports as well, make sure to go to Zacks.com to see all of the great tools we have to offer, including our time-tested Zacks Rank.


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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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