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Is WMFAX a Strong Bond Fund Right Now?

Zacks Equity Research

Muni - Bonds fund seekers should consider taking a look at Wells Fargo Municipals Bond Fund A (WMFAX). WMFAX possesses a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

Zacks categorizes WMFAX 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

Wells Fargo is based in San Francisco, CA, and is the manager of WMFAX. Wells Fargo Municipals Bond Fund A debuted in April of 2005. Since then, WMFAX has accumulated assets of about $1.21 billion, according to the most recently available information. Lyle J. Fitterer is the fund's current manager and has held that role since April of 2005.

Performance

Of course, investors look for strong performance in funds. This fund carries a 5-year annualized total return of 3.68%, and it sits in the top third among its category peers. If you're interested in shorter time frames, do not dismiss looking at the fund's 3-year annualized total return of 3.19%, 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. Over the past three years, WMFAX's standard deviation comes in at 3.25%, compared to the category average of 7.42%. Over the past 5 years, the standard deviation of the fund is 2.81% compared to the category average of 7.64%. 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. WMFAX has a modified duration of 5.09, which suggests that the fund will decline 5.09% 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. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 4.37% means that a $10,000 investment should result in a yearly payout of $437.

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.

Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. This fund has a beta of 0.89, meaning that it is less volatile than a broad market index of fixed income securities. Taking this into account, WMFAX has a positive alpha of 0.32, 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, WMFAX has 35.4% in high quality bonds rated at least 'AA' or higher, while 48.07% are of medium quality, with ratings of 'A' to 'BBB'. The fund has an average quality of A, and focuses on high quality securities.

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, WMFAX is a load fund. It has an expense ratio of 0.79% compared to the category average of 0.85%. From a cost perspective, WMFAX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $1,000; each subsequent investment needs to be at least $100.

Bottom Line

Overall, Wells Fargo Municipals Bond Fund A ( WMFAX ) has a high Zacks Mutual Fund rank, strong performance, average downside risk, and lower fees compared to its peers.

This could just be the start of your research on WMFAXin 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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