Is ACTHX a Strong Bond Fund Right Now?

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Having trouble finding a Muni – Bonds fund? Invesco High Yield Municipals A (ACTHX Free Report) is a potential starting point. ACTHX possesses 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 ACTHX 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

Invesco is based in Kansas City, MO, and is the manager of ACTHX. Invesco High Yield Municipals A debuted in January of 1986. Since then, ACTHX has accumulated assets of about $701.56 million, according to the most recently available information. A team of investment professionals is the fund’s current manager.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund carries a 5-year annualized total return of 7.27%, and is 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 5.14%, 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 ACTHX over the past three years is 3.99% compared to the category average of 7.27%. Over the past 5 years, the standard deviation of the fund is 4% compared to the category average of 7.17%. 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, and is a metric that’s a good way to judge how fixed income securities will respond in a shifting rate environment.

If you believe interest rates will rise, this is an important factor to look at. ACTHX has a modified duration of 8.47, which suggests that the fund will decline 8.47% for every hundred-basis-point increase in interest rates.

Income

We must remember to consider the fund’s average coupon, as income is traditionally a big reason for purchasing a fixed income security. A fund’s average coupon is simply its average payout in a given year. For example, this fund’s average coupon of 6.41% means that a $10,000 investment should result in a yearly payout of $641.

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. ACTHX carries a beta of 1.21, meaning that the fund is more volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 2.28, 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, ACTHX has 25.3% in medium quality bonds, with ratings of ‘A’ to ‘BBB’. The fund’s junk bond component-bonds rated ‘BB’ or below-is at 30.54%, giving ACTHX an average quality of BBB. This means that it focuses on medium quality securities.

However, it is worth noting that 35 % 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, ACTHX is a load fund. It has an expense ratio of 1.07% compared to the category average of 0.87%. So, ACTHX is actually more expensive than its peers from a cost perspective.

While the minimum initial investment for the product is $1,000, investors should also note that each subsequent investment needs to be at least $50.

Bottom Line

Overall, Invesco High Yield Municipals A ( ACTHX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and higher fees, this fund looks like a good potential choice for investors right now.

This could just be the start of your research on ACTHXin 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. Want to learn even more? We have a full suite of tools on stocks that you can use to find the best choices for your portfolio too, no matter what kind of investor you are.