Is PRGMX A Strong Bond Fund Right Now?

If investors are looking at the Government Mortgage - Intermediate fund category, T. Rowe Price GNMA Fund PRGMX could be a potential option. PRGMX bears a Zacks Mutual Fund Rank of 2 (Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

We classify PRGMX in the Government Mortgage - Intermediate category, an area full of potential choices. Government Mortgage - Intermediate funds focus on the mortgage-backed securities (MBS) market, which packages mortgages together and then sells off the pooled securities as a MBS. Honing in on MBS'that have at least three years to maturity but less than 10, this fund category presents a medium risk and yield profile.

History of Fund/Manager

PRGMX finds itself in the T. Rowe Price family, based out of Baltimore, MD. T. Rowe Price GNMA Fund made its debut in November of 1985, and since then, PRGMX has accumulated about $1.38 billion in assets, per the most up-to-date date available. The fund's current manager, Andrew C. McCormick (NYSE:MKC), has been in charge of the fund since April of 2008.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 0.88%, and is in the middle third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 0.45%, 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, PRGMX's standard deviation comes in at 1.55%, compared to the category average of 2.31%. The fund's standard deviation over the past 5 years is 2.23% compared to the category average of 2.67%. This makes the fund less volatile than its peers over the past half-decade.

Bond Duration

Modified duration is a measure of a specific bond's interest rate sensitivity, and is an excellent way to judge how fixed income securities will respond to a shifting rate environment.

For those that believe interest rates will rise, this is an important factor to consider. PRGMX has a modified duration of 4.3, which suggests that the fund will decline 4.3% for every hundred-basis-point increase in interest rates.

PRGMX carries a beta of 0.65, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a negative alpha of -0.21, which measures performance on a risk-adjusted basis.

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, PRGMX is a no load fund. It has an expense ratio of 0.60% compared to the category average of 0.83%. From a cost perspective, PRGMX is actually cheaper than its peers.

This fund requires a minimum initial investment of $2,500, and each subsequent investment should be at least $100.

Bottom Line

Overall, T. Rowe Price GNMA Fund has a high Zacks Mutual Fund rank, and in conjunction with its comparatively similar performance, average downside risk, and lower fees, T. Rowe Price GNMA Fund looks like a good potential choice for investors right now.

Want even more information about PRGMX? Then go over to Zacks.com and check out our mutual fund comparison tool, and all of the other great features that we have to help you with your mutual fund analysis 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.