If investors are looking at the Muni – Bonds fund category, Franklin California High Yield Municipals A (FCAMX) could be a potential option. FCAMX carries a Zacks Mutual Fund Rank of 2 (Buy), which is based on various forecasting factors like size, cost, and past performance.
Zacks categorizes FCAMX 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.
Franklin is responsible for FCAMX, and the company is based out of San Mateo, CA. The Franklin California High Yield Municipals A made its debut in May of 1993 and FCAMX has managed to accumulate roughly $667.83 million in assets, as of the most recently available information. The fund is currently managed by a team of investment professionals.
Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of 0.98%, 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 1.35%, which places it in the middle third during this time-frame.
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It is important to note that the product’s returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund’s [%] sale charge. If sales charges were included, total returns would have been lower.
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 FCAMX over the past three years is 8.25% compared to the category average of 12.69%. The fund’s standard deviation over the past 5 years is 7.3% compared to the category average of 12.26%. This makes the fund less volatile than its peers over the past half-decade.
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 investors who think interest rates will rise, this is an important factor to consider. FCAMX has a modified duration of 7.76, which suggests that the fund will decline 7.76% for every hundred-basis-point increase in interest rates.
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 5.15% means that a $10,000 investment should result in a yearly payout of $515.
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. This fund has a beta of 0.82, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, FCAMX has a positive alpha of 0.85, which measures performance on a risk-adjusted basis.
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, FCAMX has 20.12% in high quality bonds rated at least ‘AA’ or higher, while 24.86% are of medium quality, with ratings of ‘A’ to ‘BBB’. The fund has an average quality of BBB, and focuses on medium quality securities.
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.
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, FCAMX is a load fund. It has an expense ratio of 0.65% compared to the category average of 0.89%. So, FCAMX is actually cheaper than its peers from a cost perspective.
This fund requires a minimum initial investment of $1,000, while there is no minimum for each subsequent investment.
Fees charged by investment advisors have not been taken into considiration. Returns would be less if those were included.
Overall, Franklin California High Yield Municipals A ( FCAMX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Franklin California High Yield Municipals A ( FCAMX ) looks like a good potential choice for investors right now.
For additional information on this product, or to compare it to other mutual funds in the Muni – Bonds, make sure to go to www.zacks.com/funds/mutual-funds 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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This article originally published on Zacks Investment Research (zacks.com).
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