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Bonds

Potential Muni - Bonds Fund: American Century CA High Yield Municipals A (CAYAX)

2024-11-18

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.

Alibaba Group Holding BABA is set to embark on a significant financial move by planning to issue U.S. dollars and Chinese yuan bonds. This strategic decision aims to address existing debt and provide a boost to the ongoing stock buyback initiative. The company recognizes the importance of leveraging low global interest rates to replenish its capital base and enhance shareholder value.

Benefits of Bond Issuance

Market analysts highlight that the declining interest rates in the Asia-Pacific region have made debt issuance an attractive option for companies like Alibaba. By issuing bonds, Alibaba can execute share buybacks and invest strategically without incurring high financing costs. This allows the company to optimize its capital structure and return more value to shareholders.For instance, Kenny Ng Lai-yin from Everbright Securities International told the SCMP that this environment offers a unique chance for firms to enhance capital returns through debt financing. The company's strategic push to increase buybacks reflects a broader trend among top Chinese tech firms, driven by steep declines in stock valuations.Alibaba's shares have faced significant challenges, falling approximately 70% from their peak in late 2020. Despite continued growth in sales and profits, economic weakness, domestic regulatory crackdowns, and disappointing fiscal stimulus have weighed on the stock. However, the bond issuance provides an opportunity to stabilize the company's financial position and support its share price.

Details of Bond Issuance

The exact principal amount, interest rates, and maturity terms for the bonds will be determined at the time of pricing. According to SCMP, the issuance is likely to generate up to $5 billion. The dollar-denominated bonds will have maturities of 5.5, 10.5, and 30 years, while the yuan-denominated bonds will carry tenors of 3.5, 5, 10, and 20 years. This broad range of options provides potential investors with flexibility and choice.Yields on U.S. Treasuries currently stand at around 4.31% for five-year notes, 4.44% for ten-year notes, and 3.62% for thirty-year bonds. In contrast, Chinese government bonds offer significantly lower yields, with three-year and five-year bonds yielding 1.35% and 1.7%, respectively. This disparity creates favorable conditions for Alibaba's planned bond issuance, reducing the overall cost of borrowing.

Financial Performance and Liabilities

Last week, Alibaba reported fiscal second-quarter 2024 revenue growth of 5% to $33.70 billion, beating the analyst consensus of $33.47 billion. Taobao and Tmall Group revenue grew by 1% to $14.11 billion, Alibaba International Digital Commerce Group's revenue increased by 29% to $4.51 billion, and Local Services Group revenue grew by 14% to $2.53 billion. Cainiao Smart Logistics Network Limited's revenue increased 8% to $3.51 billion, and Cloud Intelligence Group revenue grew by 7% to $4.22 billion.As of September 30, Alibaba reported total outstanding liabilities of 202.2 billion yuan ($27.9 billion) in bank loans and bonds, marking an 18% increase since March. The company raised $5.5 billion in May through a convertible bond issue. The current bond offering aligns with Alibaba's aggressive stock repurchase program, initiated during the pandemic in 2020.

Investor Actions and Market Outlook

Michael Burry's fund increased its stakes in Alibaba, JD.com Inc., and Baidu Inc., making Chinese tech its largest holdings. Despite boosting exposure, Burry hedged risks by purchasing put options, signaling caution on potential market volatility.Price Action shows that BABA stock is up 0.42% at $88.96 premarket at the last check on Monday. This indicates a positive sentiment in the market towards Alibaba's financial moves and future prospects.In conclusion, Alibaba's bond issuance plan is a crucial step in its journey to strengthen its financial position and enhance shareholder value. By leveraging the favorable market conditions and optimizing its capital structure, the company aims to navigate through the challenges and continue its growth trajectory.

In the complex world of financial markets, one area that has long remained somewhat opaque is the trading of US corporate bonds. However, a significant development is underway as some of Wall Street's largest banks are joining forces with BlackRock Inc.'s Aladdin technology system. This move aims to provide real-time pricing data, bringing much-needed transparency to this crucial market segment.

Enhancing Market Transparency

It is a step in the right direction towards a more transparent market. Historically, hyper-competitive banks have hoarded pricing information, but now, through this partnership, data will be contributed to Aladdin via BondCliQ Inc. This system describes itself as the creator and operator of the first and only consolidated quote system for US corporate bonds.Dealers such as Bank of America Corp., Morgan Stanley, and JPMorgan Chase & Co. are among those participating. While representatives for the banks have not yet responded to requests for comment, this collaboration holds great promise.Users of Aladdin's platform will gain direct access to licensed and attributed quotes from more than three dozen dealers. The data includes price quotes for both investment-grade and junk-rated US debt. As Bloomberg LP, the owner of Bloomberg News, also provides pricing data for corporate bonds, this comprehensive offering will offer equal access to information.Chris White, the founder of BondCliQ, emphasizes the significance of this partnership. "This partnership presents pricing data uniformly to all buy-side clients, just like the US equity market. According to history, the adoption of centralized pricing data will lead to improved secondary market liquidity and greater market integrity for both retail and institutional investors."

Overcoming Market Laggardship

The corporate bond market has long been regarded as a laggard in modernization. While the vast majority of the equity and currency markets moved to electronic exchanges decades ago, the bond market has been slower to adopt these changes. Anachronistic bond trading has attracted the attention of regulators, who have recommended "tighter reporting and public dissemination requirements for bonds" in the aftermath of market volatility in March 2020.However, a hurdle to more transparency has been the dealers themselves. They earn money from arranging trades on behalf of clients. But as fixed-income trading volumes boom, this attitude is beginning to change."For dealers, contributing to BondCliQ will attract order flow, and for buy-side institutions, leveraging BondCliQ pricing within Aladdin will improve their workflow and dealer selection process when block trading," says White. He has prior experience in spearheading previous electronic trading projects in credit at Goldman Sachs Group Inc. and Barclays Capital.

Increasing Trading Volume

US trading volume for high-grade notes rose nearly 20% in the first half of the year, and 13% for junk. A jump in portfolio trading has contributed to this increase. Portfolio trading allows investors to buy and sell large lots of different bonds at once.Barclays strategists, including Zornitsa Todorova, wrote last week in a separate report that US portfolio trading is booming, with a new trade every seven minutes. This is 10 times faster than in 2018.More electronic trading has also played a role in boosting volume. Research firm Coalition Greenwich stated that about 40% of corporate bond trades are now online, up from less than a tenth a decade earlier.Larry Tabb, the head of market structure research at Bloomberg Intelligence, believes that increased transparency will make the market more electronic and more efficient. "We've seen that in the equities world, the FX world, and in some asset classes that are more transparent and liquid. And this is starting to happen in the corporate bond market."