4 / 5 Stars
5 5 5 4 1
Zacks Investment Research
Standard & Poor's
5 / 5 Stars
#11 in Short-Term Bond
U.S. News evaluated 128 Short-Term Bond Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.
The fund has returned 2.75 percent over the past year, 2.51 percent over the past three years, 3.86 percent over the past five years, and 3.89 percent over the past decade.
|Trailing Returns||Updated 06.30.2014|
|Year to date||1.5%|
|3 Years (Annualized)||2.5%|
|5 Years (Annualized)||3.9%|
|10 Years (Annualized)||3.9%|
The USAA Short-Term Bond Fund has a proven agility in shifting fixed-income environments. After holding up relatively well in the uncertain wilderness of 2008 by sticking to higher-yielding securities, it quickly switched to beaten-down U.S. corporate bonds, catching the rally that gave it an outstanding 14 percent return in 2009.
As of July 03, 2014, the fund has assets totaling almost $3.63 billion invested in 610 different holdings. Its portfolio consists of primarily of mortgage-backed securities and U.S. corporate and asset-backed bonds.
Sensing that the junk bond rally might be nearing its end, management again changed course by moving back to the safety of AAA-rated bonds, which made up 56 percent of its portfolio as of July 31. This strategy seems to have helped, allowing the fund a 5 percent return this year as of October 19. Still, although it largely stays away from below-investment grade bonds in the current environment, its nearly 19 percent stake in BBB-rated bonds is triple the category average. The fund has returned 2.75 percent over the past year and 2.51 percent over the past three years.
The fund, launched in 1993, tends to favor bonds of medium risk overall. Its returns are fairly average for the short-term bond category, ranking in the top 45 percent of its Morningstar category. The fund has returned 3.86 percent over the past five years and 3.89 percent over the past decade.
Management tries to focus on income rather than interest-rate bets. It also favors holding A- and BBB-rated bonds, known as lower-rated, investment-grade bonds, for an average duration of just under three years. AAA-rate bonds are still its mainstay and typically account for more than half of its portfolio. This fund is focused on corporate, asset-backed and mortgage-backed bonds.
Role in Portfolio
Morningstar calls this fund a supporting player for those investors with shorter-term financial goals.
R. Matthew Freund, vice-president of fixed-income at USAA, has managed the fund since 2002 and has been with USAA since 1994. Julianne Bass joined him in 2007.
USAA Short Term Bond Fund has an expense ratio of 0.64 percent.
The most prominent risk has nothing to do with the fund’s assets, most of which are short-term bonds that have a low volatility. At 0.72 percent, the fund’s expense ratio will cut into investor performance. It may not sound like much, but Morningstar’s Ryan Leggio says, “Its 0.72% expense ratio makes it the most expensive no-load short-term bond fund with more than $1 billion in assets.” With a 4.2 percent 10-year annualized rate of return, that high expense ratio, could take about 15 percent of gains each year. And that’s without factoring in annualized costs.