Is BCHYX a Strong Bond Fund Right Now?

Zacks Equity Research

Muni - Bonds fund seekers should consider taking a look at American Century CA High Yield Municipals Investor (BCHYX). BCHYX has a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

Zacks categorizes BCHYX as Muni - Bonds, which is a segment packed with options. Muni - Bonds funds invest in debt securities issued by states or local municipalities. These are generally used to finance construction of infrastructure, pay for schools, or other government functions. Some are backed by taxes (revenue bonds), while others are " general obligation " and may not be backed by a defined source. Investors usually appreciate the tax benefits that come with many municipal bonds, which are especially impressive for those in high tax brackets.

History of Fund/Manager

BCHYX finds itself in the American Century family, based out of Kansas City, MO. Since American Century CA High Yield Municipals Investor made its debut in December of 1986, BCHYX has garnered more than $978.84 million in assets. The fund's current manager is a team of investment professionals.

Performance

Investors naturally seek funds with strong performance. This fund has delivered a 5-year annualized total return of 4.69%, 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 6.06%, 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 BCHYX over the past three years is 2.77% compared to the category average of 7.57%. Looking at the past 5 years, the fund's standard deviation is 3.77% compared to the category average of 7.96%. 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 investors who think interest rates will rise, this is an important factor to consider. BCHYX has a modified duration of 7.98, which suggests that the fund will decline 7.98% 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. A fund's average coupon is simply its average payout in a given year. For example, this fund's average coupon of 4.9% means that a $10,000 investment should result in a yearly payout of $490.

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. BCHYX carries a beta of 0.82, 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 0.67, which measures performance on a risk-adjusted basis.

Ratings

However, it is worth noting that 43 % of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.

Expenses

For investors, taking a closer look at cost-related metrics is key, since costs are increasingly important for mutual fund investing. Competition is heating up in this space, and a lower cost product will likely outperform its otherwise identical counterpart, all things being equal. In terms of fees, BCHYX is a no load fund. It has an expense ratio of 0.50% compared to the category average of 0.83%. From a cost perspective, BCHYX is actually cheaper than its peers.

While the minimum initial investment for the product is $5,000, investors should also note that each subsequent investment needs to be at least $50.

Bottom Line

Overall, American Century CA High Yield Municipals Investor ( BCHYX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, American Century CA High Yield Municipals Investor ( BCHYX ) looks like a good potential choice for investors right now.

This could just be the start of your research on BCHYXin 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. 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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