Is VUSTX a Strong Bond Fund Right Now?
On the lookout for a Government Bond - Long fund? Starting with Vanguard Long-Term Treasury Investor (VUSTX) is one possibility. VUSTX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
VUSTX is part of the Government Bond - Long section, a segment that boasts an array of possible selections. Government Bond - Long 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 focuses on the long end of the curve, and that results in higher yields, but greater sensitivity to interest rate fluctuations, too.
History of Fund/Manager
Vanguard Group is based in Malvern, PA, and is the manager of VUSTX. Since Vanguard Long-Term Treasury Investor made its debut in May of 1986, VUSTX has garnered more than $870.03 million in assets. The fund's current manager, Gemma Wright Casparius, has been in charge of the fund since January of 2015.
Obviously, what investors are looking for in these funds is strong performance relative to their peers. VUSTX has a 5-year annualized total return of 4.81% 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 2.05%, 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. Compared to the category average of 8.23%, the standard deviation of VUSTX over the past three years is 10.59%. The standard deviation of the fund over the past 5 years is 10.72% compared to the category average of 8.64%. This makes the fund more volatile than its peers over the past half-decade.
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.
For those that believe interest rates will rise, this is an important factor to consider. VUSTX has a modified duration of 16.96, which suggests that the fund will decline 16.96% for every hundred-basis-point increase in interest rates.
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 3.37% means that a $10,000 investment should result in a yearly payout of $337.
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.
Since income is just one part of the bond picture, investors need to consider risk relative to broad benchmarks. With a beta of 3.22, this fund is more volatile than a broad market index of fixed income securities. Taking this into account, VUSTX has a negative alpha of -2, which measures performance on a risk-adjusted basis.
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, VUSTX is a no load fund. It has an expense ratio of 0.20% compared to the category average of 0.91%. VUSTX is actually cheaper than its peers when you consider factors like cost.
This fund requires a minimum initial investment of $3,000, and each subsequent investment should be at least $1.
Overall, Vanguard Long-Term Treasury Investor ( VUSTX ) has a high Zacks Mutual Fund rank, strong performance, average downside risk, and lower fees compared to its peers.
For additional information on this product, or to compare it to other mutual funds in the Government Bond - Long, make sure to go to www.zacks.com/funds/mutual-funds 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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