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Is BCHYX a Strong Bond Fund Right Now?

Having trouble finding a Muni - Bonds fund? American Century CA High Yield Municipals Investor (BCHYX) is a potential starting point. BCHYX bears a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify BCHYX in the Muni - Bonds category, an area rife with potential choices. Muni - Bonds funds focus their investments on debt securities issued by state and local governments. These are typically used to pay for the construction of infrastructure, the operation of public schools, and other municipal functions. These securities can come in the form of revenue bonds, which are backed by taxes, as well as " general obligation " bonds that are not backed by a defined source. Investors are usually interested that come with most municipal bonds, which can be especially important for those in higher tax brackets.

History of Fund/Manager

American Century is based in Kansas City, MO, and is the manager of BCHYX. American Century CA High Yield Municipals Investor debuted in December of 1986. Since then, BCHYX has accumulated assets of about $887.96 million, according to the most recently available information. The fund is currently managed by a team of investment professionals.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 5.01%, and is 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 2.99%, 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. BCHYX's standard deviation over the past three years is 4.28% compared to the category average of 7.71%. Looking at the past 5 years, the fund's standard deviation is 3.73% compared to the category average of 7.77%. 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. BCHYX has a modified duration of 8.57, which suggests that the fund will decline 8.57% 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 4.79% means that a $10,000 investment should result in a yearly payout of $479.

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. This fund has a beta of 1.14, meaning that it is more volatile than a broad market index of fixed income securities. Taking this into account, BCHYX has a positive alpha of 0.8, which measures performance on a risk-adjusted basis.

Ratings

However, it is worth noting that 45 % of the bonds in this fund are not ranked, so take the average quality level with a bit of caution.

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, BCHYX is a no load fund. It has an expense ratio of 0.50% compared to the category average of 0.85%. So, BCHYX is actually cheaper than its peers from a cost perspective.

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, strong performance, average downside risk, and lower fees compared to its peers.

Want even more information about BCHYX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis for additional information. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.


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