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Bonds

Discovering the Potential of USAA Tax-Exempt Intermediate-Term (USATX)

2024-11-18

When it comes to seeking a Muni – Bonds fund, USAA Tax-Exempt Intermediate-Term (USATX) emerges as a notable option. With a Zacks Mutual Fund Rank of 1 (Strong Buy), it stands out among its peers, backed by factors such as size, cost, and past performance. USATX is just one among the plethora of Muni – Bonds funds available, each with its own unique characteristics.

Uncover the Hidden Gems in Muni – Bonds with USATX

Muni – Bonds and Their Significance

Muni – Bonds funds play a crucial role in the investment landscape by investing in debt securities issued by states and local municipalities. These funds are often used to fund essential infrastructure projects, educational institutions, and other government initiatives. The tax benefits associated with these bonds make them particularly attractive to investors. Some bonds are backed by taxes (revenue bonds), while others are known as "general obligation" bonds and may not have a specific source of repayment. This diversity offers investors a range of options to suit their risk appetites and investment goals.

For instance, consider a state that is planning to build a new highway. To finance this project, the state may issue Muni – Bonds. Investors who purchase these bonds become creditors of the state and receive regular interest payments until the bonds mature. The tax advantages of Muni – Bonds can be significant, as the interest income is often exempt from federal taxes and in some cases, state and local taxes as well. This can lead to higher after-tax returns for investors, making Muni – Bonds an attractive addition to a diversified investment portfolio.

USATX - A Manager with a Proven Track Record

Victory, based in Columbus, OH, manages USATX. Since its debut in March 1982, USATX has amassed over $2.51 billion in assets. Andrew Hattman currently serves as the fund's manager, having taken on this role since July 2019. Under his leadership, the fund has shown consistent performance and has become a trusted choice among investors.

The fund's long history and the experience of its management team give investors confidence in its ability to navigate different market conditions. Andrew Hattman's expertise in the Muni – Bonds space allows him to make informed investment decisions and manage the fund's portfolio effectively. His track record of success adds to the appeal of USATX and makes it a fund worth considering for those looking to invest in Muni – Bonds.

Performance Metrics and Risk Analysis

Investors are naturally concerned about the performance of the funds they invest in. USATX has a 5-year annualized total return of 1.26%, placing it in the top third among its category peers. This indicates that the fund has delivered relatively strong returns over the long term. However, for those with a shorter time horizon, the 3-year annualized total return of -0.03% is also worth considering. While it may not be as impressive as the 5-year return, it still shows that the fund has been able to generate positive returns over a three-year period.

When evaluating a fund's performance, it is essential to look at the standard deviation of the returns. A lower standard deviation indicates less volatility, which means the fund experiences fewer ups and downs in value. USATX has a standard deviation of 6.15% over the past three years, compared to the category average of 11.62%. This makes the fund less volatile than its peers, providing investors with a more stable investment option. Over the past 5 years, the fund's standard deviation is 5.75%, further highlighting its ability to manage risk and deliver consistent returns.

Cost Considerations and Competitive Advantage

Cost is a crucial factor in mutual fund investing, and USATX stands out in this regard. As a no load fund, it has an expense ratio of 0.49%, which is significantly lower than the category average of 0.84%. This means that investors can keep more of their investment returns and benefit from lower fees. In a competitive market, a lower cost product has the potential to outperform its otherwise identical counterpart. By choosing USATX, investors can enjoy the benefits of Muni – Bonds investing with lower costs, enhancing their overall investment returns.

It is important to note that while costs are an important consideration, they are not the only factor to evaluate. Other factors such as performance, risk, and management expertise also play a significant role in determining the suitability of a fund. However, when comparing different Muni – Bonds funds, a lower cost structure can provide a competitive advantage and improve the fund's long-term performance.

Investment Requirements and Considerations

USATX has a minimum initial investment of $3,000, with subsequent investments of at least $50. This makes it accessible to a wide range of investors, allowing them to start investing in Muni – Bonds with a relatively small amount. However, it is important to consider that fees charged by investment advisors have not been taken into account. If these fees were included, the returns would be lower. Therefore, investors should carefully consider their investment goals, risk tolerance, and overall financial situation before investing in USATX or any other mutual fund.

Overall, USAA Tax-Exempt Intermediate-Term (USATX) offers a compelling combination of a high Zacks Mutual Fund rank, strong performance, better downside risk, and lower fees. It is a fund that deserves careful consideration for investors looking to add Muni – Bonds to their portfolio. With its proven track record and competitive advantages, USATX has the potential to provide investors with stable returns and help them achieve their long-term financial goals.

For additional information on the Muni – Bonds area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into USATX too 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.Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportGet Your Free (USATX): Fund Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research

In Beijing, China on September 04, 2020, the central business district during the rush hour presented a bustling scene with buildings and vehicles. Zhang Qiao from Visual China Group and Getty Images captured this moment. State-backed The Securities Times reported on Monday that China's finance ministry is devising a strategy to front-load a portion of the 2025 local government special bonds quota. This move is aimed at fulfilling the funding requirements for significant infrastructure projects. The State Council, as China's cabinet, typically determines and distributes an advance allocation of new local government debt quotas for the following year in the fourth quarter, taking into account the economic conditions. It was stated that "At present, the Ministry of Finance is formulating an advance work plan to better ensure the funding needs of major projects in key areas and to leverage the important role of government bond funds in the economic recovery," without providing specific details. By the end of October, local governments had issued 3.9 trillion yuan ($539 billion) in new special bonds, nearly completing the debt issuance under the 2024 quota. Last week, data was released indicating that factory output growth decelerated in October. Although consumers showed signs of improvement, it was still too early to declare a turnaround in the crisis-hit property sector. This has kept alive the demand for Beijing to enhance its recent stimulus measures to revitalize the economy. Earlier this month, China unveiled a 10 trillion yuan debt package to alleviate local government financing difficulties and stabilize the flagging economic growth. As it faces new pressure following the re-election of Donald Trump as U.S. president, the central bank has also intensified policy support since late September. It has cut interest rates and injected more cash into the economy to assist in meeting the government's 2024 growth target of around 5%.

Unraveling China's Finance Ministry's Bond Move

Front-Loading of 2025 Local Government Special Bonds Quota

The finance ministry's decision to front-load part of the 2025 local government special bonds quota is a significant move. It shows their proactive approach in addressing the funding needs of major infrastructure projects. By doing so, they aim to provide a much-needed boost to the economy. This strategy allows for timely allocation of funds, ensuring that projects can proceed smoothly and contribute to the overall development. It also highlights the importance of government bond funds in driving economic recovery.

Moreover, this move reflects the government's awareness of the current economic challenges and their commitment to taking proactive measures. It demonstrates their understanding that infrastructure development plays a crucial role in stimulating economic growth. By front-loading the bonds, they are able to kick-start projects that will have a long-term positive impact on the country's development.

State Council's Role in Determining Debt Quotas

The State Council's role in determining and issuing advance allocations of new local government debt quotas is of great significance. Based on economic conditions, they make strategic decisions to ensure the proper utilization of funds. This process helps in maintaining a balanced approach to debt management and economic development. By carefully assessing the economic situation, the State Council can allocate the appropriate amount of debt quota to different regions and sectors.

It also provides a sense of stability and predictability in the financial system. Local governments can plan their projects and financing activities with more certainty, knowing the amount of debt quota they will receive. This helps in avoiding sudden shocks and ensures a more sustainable growth path. The State Council's role in this regard is crucial for the smooth functioning of the local government's debt management and economic activities.

Progress in New Special Bond Issuance

By the end of October, local governments had achieved remarkable progress in issuing new special bonds. The issuance of 3.9 trillion yuan ($539 billion) under the 2024 quota is a significant milestone. This indicates the active participation of local governments in leveraging government bond funds for infrastructure development. The timely issuance of bonds helps in meeting the funding needs of various projects and keeps the economic momentum going.

However, it is important to note that while the progress is significant, there is still room for further improvement. Continued efforts are needed to ensure that the funds are utilized efficiently and that the projects deliver the expected results. Monitoring and evaluation mechanisms should be in place to ensure the proper use of funds and to address any potential issues promptly.

Impact on Factory Output and Property Sector

The data released last week showing the slowdown in factory output growth in October raises concerns. Although consumers showed some signs of improvement, it is too early to declare a turnaround in the crisis-hit property sector. This highlights the need for continued support and stimulus measures to revive the economy.

The finance ministry's plan to front-load local government special bonds and the central bank's policy support play a crucial role in addressing these challenges. By providing additional funds and stimulating economic activities, they aim to boost factory output and revive the property sector. These measures are essential for maintaining economic stability and promoting sustainable growth.

China's Debt Package and Economic Stimulus

Earlier this month, China unveiled a 10 trillion yuan debt package, which is a significant step in addressing local government financing strains and stabilizing economic growth. This package provides a much-needed lifeline to the economy and helps in overcoming the challenges posed by various factors such as the re-election of Donald Trump as U.S. president.

The debt package is designed to inject liquidity into the economy and support infrastructure development. It also helps in reducing the financial burden on local governments and enabling them to undertake more projects. By providing a comprehensive solution, China is taking proactive measures to ensure economic stability and growth.

Investors seeking opportunities in the Muni - Bonds fund category might find American Century CA High Yield Municipals A (CAYAX) to be a compelling option. With a Zacks Mutual Fund Rank of 1 (Strong Buy), it stands out based on factors such as size, cost, and past performance. CAYAX is just one among the numerous Muni - Bonds funds available. These funds invest in debt securities issued by states and local municipalities, which are commonly used for infrastructure construction, schools, and other government-related purposes. Some securities are backed by taxes (revenue bonds), while others are known as "general obligation" and may not have a specific backing. The inherent tax benefits make these bonds highly attractive.

American Century Family and Fund History

CAYAX belongs to the American Century family based in Kansas City, MO. It made its debut in January 2003 and has accumulated approximately $48.13 million in assets as of the latest available date. The fund is currently managed by Joseph Gotelli, who has been in charge since January 2012. This long history and experienced management add to the fund's credibility.When it comes to performance, this fund shows interesting characteristics. It has a 5 - year annualized total return of 0.81% and is positioned in the middle third among its category peers. For shorter time frames, the 3 - year annualized total return of -0.9% also places it in the middle third. It's important to note that the product's returns may not fully reflect all expenses. Any unaccounted fees would lower the returns. Additionally, total returns do not include the fund's [%] sale charge. If sales charges were included, total returns would be lower.Looking at the standard deviation of returns is crucial. A lower standard deviation indicates less volatility. Over the past three years, CAYAX has a standard deviation of 9.11% compared to the category average of 13.19%. Over the past 5 years, the standard deviation is 8.41% compared to the category average of 13.67%. This makes CAYAX less volatile than its peers over the past half - decade.CAYAX also has a beta of 0.91, meaning it is less volatile than a broad market index of fixed income securities. With a positive alpha of 0.21, it performs well on a risk - adjusted basis.In terms of bond ratings, CAYAX has 22.8% in high quality bonds rated at least "AA" or higher and 22.95% in medium quality bonds with ratings of "A" to "BBB". The fund has an average quality of BBB and focuses on medium quality securities. However, it's worth noting that 48% of the bonds in this fund are not ranked, so one should approach the average quality level with some caution.

Cost Considerations

Costs play a significant role in mutual fund investing, especially in a competitive market. All else being equal, a lower cost product tends to outperform its identical counterpart. CAYAX is a load fund with an expense ratio of 0.75% compared to the category average of 0.90%. From a cost perspective, CAYAX is actually cheaper than its peers. It's essential for investors to be aware of these cost differences.Investors should also note that the minimum initial investment for the product is $2,500, and each subsequent investment needs to be at $50. Additionally, fees charged by investment advisors have not been considered. If these were included, returns would be lower.Overall, with a high Zacks Mutual Fund rank, comparable performance, better downside risk, and lower fees, American Century CA High Yield Municipals A (CAYAX) appears to be a good potential choice for investors at present.Your research on the Muni - Bonds segment doesn't have to end here. You can explore all the excellent mutual fund tools offered at www.zacks.com/funds/mutual - funds to obtain additional features and information. Whether you're a novice or an experienced investor, we have a full suite of tools on stocks to help you find the best choices for your portfolio.Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report.Get Your Free (CAYAX): Fund Analysis Report.To read this article on Zacks.com click here.Zacks Investment Research.