We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Buy These 4 High Yield Bonds as Rate Hike Chances Increase
Read MoreHide Full Article
The prime reason for the rising possibility of a rate hike in the coming months is the hawkish nature of comments by some key Fed officials. In her Aug 26 speech at Jackson Hole, Wyoming, Fed Chairwoman Janet Yellen also indicated the same. Moreover, Fed Vice Chairman Stanley Fischer had said that Fed Chair’s remarks were consistent with two rate hikes in 2016.
Following Yellen’s and Fisher’s comments, if the Fed opts for the first rate hike this year in September, it is expected that investors might shift toward fixed-income securities. Following this, high yield bonds or junk bonds might be considered sensible investment options.
We suggest investors to go for high yield bonds, as these bonds are less vulnerable to rate hike fluctuations. Further, high yield bonds have a shorter maturity period and better returns as compared to the other bonds.
Fed Officials’ Comments Remain Hawkish
On Friday, at the Jackson Hole economic symposium, Janet Yellen said that following the continued strong performance of the “labor market” and Fed’s outlook “for economic activity and inflation,” rate hike prospects “strengthened in recent months.” She also said that Fed policy committee anticipates “that gradual increases in the federal-funds rate will be appropriate.”
Stanley Fischer said that Yellen’s comments were “consistent” with two rate hikes this year. Fischer not only agreed with the central bank’s head but also said that “the big numbers” are “better than they have been for some time” and the economy is quite “close to what is thought of as full employment and the inflation rate is higher than last year.”
Additionally, New York Federal Reserve Bank President William Dudley said that the time to raise interest rates is approaching and could be as early as September. Further, Atlanta Fed President Dennis Lockhart feels that the economy is strong enough to withstand at least one rate hike this year.
Why Invest in High Yield Bond Funds?
According to Lipper, high-yield bond funds witnessed inflows of $162 million for the week ended Aug 24, registering its third consecutive weekly rise. When high-risk funds like high yield bonds register steady weekly gains, it is important to understand its efficacies.
Mutual funds that aim to offer attractive returns by investing in below investment-grade bonds, also known as junk bonds, are generally known as high yield bond mutual funds. High yield bonds are considered to have better returns and lower maturities as compared to investment-grade bonds. A rate hike inversely impacts bond prices, but as junk bonds have a comparatively higher coupon rate, it remains less susceptible to rate fluctuations. Moreover, as these bond funds have a shorter maturity period, it has lower risk from interest rate change.
4 High Yield Bond Funds on Focus
We have selected four mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
These funds have encouraging year-to-date, one-year and three-year annualized returns. The minimum initial investment is within $5000. Also, these funds have low expense ratios and no sales loads.
American Century High-Yield Investor (ABHIX - Free Report) seeks growth of income and capital. ABHIX normally invests the major portion of its assets in various debt instruments, including high-yield bonds. The fund also invests nearly 40% of its assets in fixed-income debt obligations of foreign companies.
ABHIX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.85%, lower than the category average of 1.04%. The fund has year-to-date, one-year and three-year annualized returns of 12.4%, 7.7% and 3.8%, respectively. Annual dividend yield of the fund is 5.1%.
AB High Income K (AGDKX - Free Report) invests in a variety of fixed income securities like high yield and corporate bonds in both emerging and developed nations. AGDKX seeks appreciation of capital and income to maximize returns.
AGDKX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.92%, lower than the category average of 1%. The fund has year-to-date, one-year and three-year annualized returns of 12.4%, 8.9% and 5.1%, respectively. Annual dividend yield of the fund is 5.8%.
Vanguard High-Yield Corporate Investor (VWEHX - Free Report) seeks to offer appreciation of income. VWEHX generally invests in high-yield corporate bonds, or junk bonds, which pay high interest rates and have greater risk than bonds with higher credit ratings.
VWEHX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.23%, lower than the category average of 1.04%. The fund has year-to-date, one-year and three-year annualized returns of 9.6%, 7.6% and 5.6%, respectively. Annual dividend yield of the fund is 5.2%.
SSgA High Yield Bond N primarily invests in fixed income securities to maximize returns. SSHYX invests the bulk portion of its assets in high-risk, high-yield bonds or junk bonds.
SSHYX, with a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.75%, lower than the category average of 1.04%. The fund has year-to-date, one-year and three-year annualized returns of 9.6%, 6.1% and 4.4%, respectively. Annual dividend yield of the fund is 5.4%.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Buy These 4 High Yield Bonds as Rate Hike Chances Increase
The prime reason for the rising possibility of a rate hike in the coming months is the hawkish nature of comments by some key Fed officials. In her Aug 26 speech at Jackson Hole, Wyoming, Fed Chairwoman Janet Yellen also indicated the same. Moreover, Fed Vice Chairman Stanley Fischer had said that Fed Chair’s remarks were consistent with two rate hikes in 2016.
Following Yellen’s and Fisher’s comments, if the Fed opts for the first rate hike this year in September, it is expected that investors might shift toward fixed-income securities. Following this, high yield bonds or junk bonds might be considered sensible investment options.
We suggest investors to go for high yield bonds, as these bonds are less vulnerable to rate hike fluctuations. Further, high yield bonds have a shorter maturity period and better returns as compared to the other bonds.
Fed Officials’ Comments Remain Hawkish
On Friday, at the Jackson Hole economic symposium, Janet Yellen said that following the continued strong performance of the “labor market” and Fed’s outlook “for economic activity and inflation,” rate hike prospects “strengthened in recent months.” She also said that Fed policy committee anticipates “that gradual increases in the federal-funds rate will be appropriate.”
Stanley Fischer said that Yellen’s comments were “consistent” with two rate hikes this year. Fischer not only agreed with the central bank’s head but also said that “the big numbers” are “better than they have been for some time” and the economy is quite “close to what is thought of as full employment and the inflation rate is higher than last year.”
Additionally, New York Federal Reserve Bank President William Dudley said that the time to raise interest rates is approaching and could be as early as September. Further, Atlanta Fed President Dennis Lockhart feels that the economy is strong enough to withstand at least one rate hike this year.
Why Invest in High Yield Bond Funds?
According to Lipper, high-yield bond funds witnessed inflows of $162 million for the week ended Aug 24, registering its third consecutive weekly rise. When high-risk funds like high yield bonds register steady weekly gains, it is important to understand its efficacies.
Mutual funds that aim to offer attractive returns by investing in below investment-grade bonds, also known as junk bonds, are generally known as high yield bond mutual funds. High yield bonds are considered to have better returns and lower maturities as compared to investment-grade bonds. A rate hike inversely impacts bond prices, but as junk bonds have a comparatively higher coupon rate, it remains less susceptible to rate fluctuations. Moreover, as these bond funds have a shorter maturity period, it has lower risk from interest rate change.
4 High Yield Bond Funds on Focus
We have selected four mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
These funds have encouraging year-to-date, one-year and three-year annualized returns. The minimum initial investment is within $5000. Also, these funds have low expense ratios and no sales loads.
American Century High-Yield Investor (ABHIX - Free Report) seeks growth of income and capital. ABHIX normally invests the major portion of its assets in various debt instruments, including high-yield bonds. The fund also invests nearly 40% of its assets in fixed-income debt obligations of foreign companies.
ABHIX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.85%, lower than the category average of 1.04%. The fund has year-to-date, one-year and three-year annualized returns of 12.4%, 7.7% and 3.8%, respectively. Annual dividend yield of the fund is 5.1%.
AB High Income K (AGDKX - Free Report) invests in a variety of fixed income securities like high yield and corporate bonds in both emerging and developed nations. AGDKX seeks appreciation of capital and income to maximize returns.
AGDKX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.92%, lower than the category average of 1%. The fund has year-to-date, one-year and three-year annualized returns of 12.4%, 8.9% and 5.1%, respectively. Annual dividend yield of the fund is 5.8%.
Vanguard High-Yield Corporate Investor (VWEHX - Free Report) seeks to offer appreciation of income. VWEHX generally invests in high-yield corporate bonds, or junk bonds, which pay high interest rates and have greater risk than bonds with higher credit ratings.
VWEHX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.23%, lower than the category average of 1.04%. The fund has year-to-date, one-year and three-year annualized returns of 9.6%, 7.6% and 5.6%, respectively. Annual dividend yield of the fund is 5.2%.
SSgA High Yield Bond N primarily invests in fixed income securities to maximize returns. SSHYX invests the bulk portion of its assets in high-risk, high-yield bonds or junk bonds.
SSHYX, with a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.75%, lower than the category average of 1.04%. The fund has year-to-date, one-year and three-year annualized returns of 9.6%, 6.1% and 4.4%, respectively. Annual dividend yield of the fund is 5.4%.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>