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Is WMFAX a Strong Bond Fund Right Now?

On the lookout for a Muni - Bonds fund? Starting with Wells Fargo Municipals Bond Fund A (WMFAX) is one possibility. WMFAX has a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

WMFAX is one of many Muni - Bonds funds to choose from. Muni - Bonds funds invest in debt securities issued by states and local municipalities, which are typically used to pay for infrastructure construction, schools, and other government functions. These securities can be backed by taxes (revenue bonds), but others are known as " general obligation " and are not necessarily backed by a defined source. These bonds are especially attractive because of their inherent tax benefits.

History of Fund/Manager

Wells Fargo is based in San Francisco, CA, and is the manager of WMFAX. Wells Fargo Municipals Bond Fund A debuted in April of 2005. Since then, WMFAX has accumulated assets of about $1.13 billion, according to the most recently available information. The fund is currently managed by Lyle J. Fitterer who has been in charge of the fund since April of 2005.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. WMFAX has a 5-year annualized total return of 4.04% and it sits in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 2.3%, 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. The standard deviation of WMFAX over the past three years is 3.14% compared to the category average of 7.14%. The fund's standard deviation over the past 5 years is 3.06% compared to the category average of 7.22%. 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. WMFAX has a modified duration of 6.34, which suggests that the fund will decline 6.34% for every hundred-basis-point increase in interest rates.

Income

Income is often a big reason for purchasing a fixed income security, so it is 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 4.46% means that a $10,000 investment should result in a yearly payout of $446.

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.

Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. WMFAX carries a beta of 0.94, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.64, 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, WMFAX has 36.2% in high quality bonds rated at least 'AA' or higher, while 46.46% 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, WMFAX is a load fund. It has an expense ratio of 0.79% compared to the category average of 0.86%. From a cost perspective, WMFAX is actually cheaper than its peers.

This fund requires a minimum initial investment of $1,000, and each subsequent investment should be at least $100.

Bottom Line

Overall, Wells Fargo Municipals Bond Fund A ( WMFAX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Wells Fargo Municipals Bond Fund A ( WMFAX ) looks like a good potential choice for investors right now.

For additional information on the Muni - Bonds 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 WMFAX 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.


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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