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Is THOPX a Strong Bond Fund Right Now?

On the lookout for an Investment Grade Bond - Short fund? Starting with Thompson Bond Fund (THOPX) is one possibility. THOPX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We note that THOPX is an Investment Grade Bond - Short option, which is an area loaded with different options. Investment Grade Bond - Short funds focus on the short end of the curve, generally with bonds that mature in less than two years. Fixed income instruments with this maturity level usually have low duration risk, while they also pay out small yields, at least when compared to their longer-dated peers. Additionally, the focus on investment grade will make funds here safer, but yields will be lower than in the junk bond category.

History of Fund/Manager

THOPX is a part of the Thompson family of funds, a company based out of Madison, WI. Thompson Bond Fund made its debut in February of 1992, and since then, THOPX has accumulated about $3.37 billion in assets, per the most up-to-date date available. The fund is currently managed by a team of investment professionals.

Performance

Of course, investors look for strong performance in funds. This fund in particular has delivered a 5-year annualized total return of 3.44%, 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 4.94%, 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, THOPX's standard deviation comes in at 3.65%, compared to the category average of 1.39%. Looking at the past 5 years, the fund's standard deviation is 3.17% compared to the category average of 1.39%. 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 investors who think interest rates will rise, this is an important factor to consider. THOPX has a modified duration of 1.1, which suggests that the fund will decline 1.1% 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 calculates the fund's average payout in a given year. For example, this fund's average coupon of 4.94% means that a $10,000 investment should result in a yearly payout of $494.

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.

Income is only one part of the bond picture, investors also need to consider risk relative to broad benchmarks. With a beta of 0.31, this fund is less volatile than a broad market index of fixed income securities. Taking this into account, THOPX has a positive alpha of 2.49, which measures performance on a risk-adjusted basis.

Ratings

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, THOPX is a no load fund. It has an expense ratio of 0.71% compared to the category average of 0.77%. Looking at the fund from a cost perspective, THOPX is actually cheaper than its peers.

Investors should also note that the minimum initial investment for the product is $250 and that each subsequent investment needs to be at $50.

Bottom Line

Overall, Thompson Bond Fund ( THOPX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, Thompson Bond Fund ( THOPX ) looks like a good potential choice for investors right now.

For additional information on the Investment Grade Bond - Short 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 THOPX too 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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