Is PDBZX A Strong Bond Fund Right Now?

Any investors hoping to find a Diversified Bonds fund might consider looking past Prudential (LON:PRU) Total Return Bond Z (PDBZX). PDBZX carries a Zacks Mutual Fund Rank of 5 (Strong Sell), which is based on nine forecasting factors like size, cost, and past performance.

Objective

The world of Diversified Bonds funds is an area filled with options, such as PDBZX. Investors looking for exposure to a variety of fixed income types that stretch across issuers, maturities, and credit levels will find a good fit with Diversified Bonds funds. Typically, these funds have a solid amount of exposure to government debt, as well as modest holdings in the corporate bond market.

History of Fund/Manager

PDBZX is a part of the Prudential family of funds, a company based out of Providence, RI. The Prudential Total Return Bond Z made its debut in September of 1996 and PDBZX has managed to accumulate roughly $16.31 billion in assets, as of the most recently available information. 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 3.02%, and is 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 2.7%, which places it in the middle 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, PDBZX's standard deviation comes in at 3.32%, compared to the category average of 7.59%. Looking at the past 5 years, the fund's standard deviation is 3.25% compared to the category average of 7.72%. 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. PDBZX has a modified duration of 6.58, which suggests that the fund will decline 6.58% for every hundred-basis-point increase in interest rates.

Income

Since income is, of course, a big reason for purchasing a fixed income security, it is always important to consider the fund's average coupon. This metric calculates the fund's average payout in a given year. For example, this fund's average coupon of 3.76% means that a $10,000 investment should result in a yearly payout of $376.

If you are looking for a strong level of current income, a higher coupon is a good choice, though it could pose a reinvestment risk; these risks can occur 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. PDBZX carries a beta of 1.13, meaning that the fund is more volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.81, 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, PDBZX has 48.34% in high quality bonds rated at least 'AA' or higher, while 33.87% 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

As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, PDBZX is a no load fund. It has an expense ratio of 0.51% compared to the category average of 0.91%. From a cost perspective, PDBZX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $5 million; each subsequent investment has no minimum amount.

Bottom Line

Overall, Prudential Total Return Bond Z ( PDBZX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a somewhat weak choice for investors right now.

Don't stop here for your research on Diversified Bonds funds. We also have plenty more on our site in order to help you find the best possible fund for your portfolio. Make sure to check out www.zacks.com/funds/mutual-funds for more information about the world of funds, and feel free to compare PDBZX to its peers as well 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.