Is VUSTX a Strong Bond Fund Right Now?

Having trouble finding a Government Bond - Long fund? Vanguard Long-Term Treasury Investor VUSTX is a potential starting point. VUSTX holds a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

VUSTX is part of the Government Bond - Long section, a segment that boasts an array of possible selections. Government Bond - Long funds hold securities issued by the federal government of the United States of America. These are seen as extremely low risk securities from a default perspective, and are often regarded as risk-free assets. This category focuses on the long end of the curve, and that results in higher yields, but greater sensitivity to interest rate fluctuations, too.

History of Fund/Manager

VUSTX is a part of the Vanguard Group family of funds, a company based out of Malvern, PA. The Vanguard Long-Term Treasury Investor made its debut in May of 1986 and VUSTX has managed to accumulate roughly $855.66 million in assets, as of the most recently available information. The fund is currently managed by Gemma Wright Casparius who has been in charge of the fund since January of 2015.

Performance

Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of 2.55%, 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 -0.64%, 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 VUSTX over the past three years is 9.79% compared to the category average of 8.21%. The fund's standard deviation over the past 5 years is 10.77% compared to the category average of 8.62%. This makes the fund more 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.

For those that believe interest rates will rise, this is an important factor to consider. VUSTX has a modified duration of 17, which suggests that the fund will decline 17% 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 3.4% means that a $10,000 investment should result in a yearly payout of $340.

While a higher coupon is good for when you want a strong level of current income, it could present a reinvestment risk 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. With a beta of 3.37, this fund is more volatile than a broad market index of fixed income securities. Taking this into account, VUSTX has a negative alpha of -2.29, which measures performance on a risk-adjusted basis.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, VUSTX is a no load fund. It has an expense ratio of 0.20% compared to the category average of 0.81%. So, VUSTX is actually cheaper than its peers from a cost perspective.

Investors should also note that the minimum initial investment for the product is $3,000 and that each subsequent investment needs to be at $1.

Bottom Line

Overall, Vanguard Long-Term Treasury Investor has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Vanguard Long-Term Treasury Investor looks like a good potential choice for investors right now.

Don't stop here for your research on Government Bond - Long funds. We also have plenty more on our site in order to help you find the best possible fund for your portfolio. Make sure to check out www.zacks.com/funds/mutual-funds for more information about the world of funds, and feel free to compare VUSTX to its peers as well 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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