There are plenty of choices in the Investment Grade Bond - Short category, but where should you start your research? Well, one fund that might be worth investigating is Vanguard Short-Term Investor Growth Income Investor (VFSTX). VFSTX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.
Objective
VFSTX is classified in the Investment Grade Bond - Short segment by Zacks, an area full of investment potential. By investing in bonds that mature in less than two years, Investment Grade Bond - Short funds are focused on the short end of the curve. Fixed income instruments at this maturity level tend to have low duration risk, but they also pay out small yields compared to their longer-dated peers. Furthermore, these funds'focus on investment grade make them safer, but yields will be lower than in the junk bond category.
History of Fund/Manager
Vanguard Group is responsible for VFSTX, and the company is based out of Malvern, PA. Since Vanguard Short-Term Investor Growth Income Investor made its debut in October of 1982, VFSTX has garnered more than $8.19 billion in assets. A team of investment professionals is the fund's current manager.
Performance
Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 3.04%, and it sits in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 3.55%, 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 10.1%, the standard deviation of VFSTX over the past three years is 2.78%. Looking at the past 5 years, the fund's standard deviation is 2.3% compared to the category average of 8.94%. This makes the fund less volatile than its peers over the past half-decade.
With a beta of 0.55, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, VFSTX has a positive alpha of 0.24, 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, VFSTX has 38.4% in high quality bonds rated at least 'AA' or higher, while 59.83% 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, VFSTX is a no load fund. It has an expense ratio of 0.20% compared to the category average of 0.76%. So, VFSTX is actually cheaper than its peers from a cost perspective.
While the minimum initial investment for the product is $3,000, investors should also note that each subsequent investment needs to be at least $1.
Bottom Line
Overall, Vanguard Short-Term Investor Growth Income Investor ( VFSTX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, better downside risk, and lower fees, Vanguard Short-Term Investor Growth Income Investor ( VFSTX ) looks like a good potential choice for investors right now.
For additional information on the Investment Grade Bond - Short 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 VFSTX too for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.
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