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4 Investment-Grade Corporate Bond Funds for a Choppy Market
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Recently, both equity and bond funds witnessed strong outflows. However, not all hopes are lost if we take a look at the latest fund flow performance of the investment-grade corporate bond funds. According to Lipper’s fund flow report, the corporate investment grade funds reported inflows.
Uncertainties are expected to remain in the marketplace as investors are still not clear weather Fed will raise its rates in its two-day policy meeting ending this Wednesday. Following this uncertainty, we have focused on investment-grade corporate bond funds. This is mainly because corporate bonds generally have higher risks and better yields than government bonds. Moreover, investment-grade bonds have higher credit ratings and lower default risk than high yield bonds. So, mutual funds having significant exposure to investment-grade corporate bonds might turn out to be a wise investment option.
Investment-Grade Corp Bond Funds Post Weekly Inflows
As per the latest Lipper weekly fund flow report, equity and taxable bond funds saw heavy outflows, whereas corporate investment grade funds managed to attract investor attention. According to Lipper, U.S.-based corporate investment grade funds registered net inflows of $569 million for the week ending September 12, after an outflow a week earlier.
PIMCO Comes Into Foray
A well-known investment management firm worldwide, Pacific Investment Management Company, LLC (commonly known as PIMCO), launched a new investment grade corporate bond fund. PIMCO’s main objective is to provide a better alternative to domestic corporate bonds or government bonds through this fund.
The company said that the fund is aimed to those investors who seek “high-quality fixed income” and wish for “higher yields and enhanced portfolio diversification.” With one of the top mutual fund families focusing on investment grade corporate bond funds, it could turn out to be a favorable investment option.
Why Buy Investment-Grade Corporate Bond Funds?
Investment grade bonds are generally considered safer than those rated below investment grade, which are commonly known as "junk" bonds. Bonds that are rated 'AAA' and 'AA' (high credit quality) and 'A' and 'BBB' (medium credit quality) by bond rating firms, like Standard & Poor's, are usually regarded as investment-grade bonds. These bonds have a low risk of loan default.
Moreover, corporate bonds are debt instruments, which generally have higher risks than government bonds. These debt securities are issued by companies. So, their performance is based on the earnings prospect of the company and hence bears higher risk. Given this risk factor, these kinds of bonds have better yields than treasury bonds. Hence, investment grade corporate bonds have better yields and lesser chances of loan defaults. Mutual funds with significant exposure to investment grade bonds are expected to enhance one’s portfolio.
Focus on Low Cost Funds
To improve our selection of investment-grade corporate bond funds, we have focused on those funds that have low expense ratio (which is lower than 0.75%) and no loads. Expense ratio is defined as the percentage of total assets required to operate a fund. Low expense ratio not only ensures efficient utilization of a fund’s assets, it also leads to encouraging returns for investors. Mutual funds with strong performance not only have low expense ratios but also have no sales loads. Funds with no sales load generally provide better yields than load funds.
Buy 4 Investment Grade Corporate Bond Funds
This encouraging backdrop calls for investors’ attention to four investment grade corporate bond mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and have encouraging yields. Moreover, these funds have impressive year-to-date (YTD), one-year and three-year annualized returns. They also have minimum initial investment within $5000, no loads and low expense ratios.
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.
Payden Corporate Bond (PYACX - Free Report) seeks high returns through capital preservation. PYACX invests more than 80% of its assets in various corporate debt securities.
PYACX has an annual expense ratio of 0.65%, lower than the category average of 0.71%. The fund has YTD, one-year and three-year annualized returns of 8.1%, 9% and 7.3%, respectively. It has a Zacks Mutual Fund Rank #1 and an annual dividend yield of 2.8%.
MFS Corporate Bond R4 (MFBJX - Free Report) invests a bulk of its assets in investment-grade debt securities. MFBJX seeks return through income and capital growth.
MFBJX has an annual expense ratio of 0.57%, lower than the category average of 0.71%. The fund has YTD, one-year and three-year annualized returns of 8%, 8% and 5.4%, respectively. The fund has a Zacks Mutual Fund Rank #1 and an annual dividend yield of 3.3%.
Fidelity Corporate Bond (FCBFX - Free Report) seeks growth of income. FCBFX invests a large chunk of its assets in various corporate debt securities including investment-grade corporate bonds. The fund invests both in U.S. and non-U.S. companies.
FCBFX has an annual expense ratio of 0.45%, lower than the category average of 0.71%. The fund has YTD, one-year and three-year annualized returns of 8.4%, 7.9% and 5.8%, respectively. It has a Zacks Mutual Fund Rank #2 and an annual dividend yield of 3%.
Columbia Corporate Income Z (SRINX - Free Report) invests the majority of its assets in corporate and non-government issued debt securities. SRINX also invests more than 60% of its assets in investment grade securities. The fund seeks appreciation of capital and income.
SRINX has an annual expense ratio of 0.68%, lower than the category average of 0.71%. The fund has YTD, one-year and three-year annualized returns of 9.6%, 8.7% and 4.7%, respectively. It has a Zacks Mutual Fund Rank #2 and an annual dividend yield of 3%.
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4 Investment-Grade Corporate Bond Funds for a Choppy Market
Recently, both equity and bond funds witnessed strong outflows. However, not all hopes are lost if we take a look at the latest fund flow performance of the investment-grade corporate bond funds. According to Lipper’s fund flow report, the corporate investment grade funds reported inflows.
Uncertainties are expected to remain in the marketplace as investors are still not clear weather Fed will raise its rates in its two-day policy meeting ending this Wednesday. Following this uncertainty, we have focused on investment-grade corporate bond funds. This is mainly because corporate bonds generally have higher risks and better yields than government bonds. Moreover, investment-grade bonds have higher credit ratings and lower default risk than high yield bonds. So, mutual funds having significant exposure to investment-grade corporate bonds might turn out to be a wise investment option.
Investment-Grade Corp Bond Funds Post Weekly Inflows
As per the latest Lipper weekly fund flow report, equity and taxable bond funds saw heavy outflows, whereas corporate investment grade funds managed to attract investor attention. According to Lipper, U.S.-based corporate investment grade funds registered net inflows of $569 million for the week ending September 12, after an outflow a week earlier.
PIMCO Comes Into Foray
A well-known investment management firm worldwide, Pacific Investment Management Company, LLC (commonly known as PIMCO), launched a new investment grade corporate bond fund. PIMCO’s main objective is to provide a better alternative to domestic corporate bonds or government bonds through this fund.
The company said that the fund is aimed to those investors who seek “high-quality fixed income” and wish for “higher yields and enhanced portfolio diversification.” With one of the top mutual fund families focusing on investment grade corporate bond funds, it could turn out to be a favorable investment option.
Why Buy Investment-Grade Corporate Bond Funds?
Investment grade bonds are generally considered safer than those rated below investment grade, which are commonly known as "junk" bonds. Bonds that are rated 'AAA' and 'AA' (high credit quality) and 'A' and 'BBB' (medium credit quality) by bond rating firms, like Standard & Poor's, are usually regarded as investment-grade bonds. These bonds have a low risk of loan default.
Moreover, corporate bonds are debt instruments, which generally have higher risks than government bonds. These debt securities are issued by companies. So, their performance is based on the earnings prospect of the company and hence bears higher risk. Given this risk factor, these kinds of bonds have better yields than treasury bonds. Hence, investment grade corporate bonds have better yields and lesser chances of loan defaults. Mutual funds with significant exposure to investment grade bonds are expected to enhance one’s portfolio.
Focus on Low Cost Funds
To improve our selection of investment-grade corporate bond funds, we have focused on those funds that have low expense ratio (which is lower than 0.75%) and no loads. Expense ratio is defined as the percentage of total assets required to operate a fund. Low expense ratio not only ensures efficient utilization of a fund’s assets, it also leads to encouraging returns for investors. Mutual funds with strong performance not only have low expense ratios but also have no sales loads. Funds with no sales load generally provide better yields than load funds.
Buy 4 Investment Grade Corporate Bond Funds
This encouraging backdrop calls for investors’ attention to four investment grade corporate bond mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and have encouraging yields. Moreover, these funds have impressive year-to-date (YTD), one-year and three-year annualized returns. They also have minimum initial investment within $5000, no loads and low expense ratios.
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.
Payden Corporate Bond (PYACX - Free Report) seeks high returns through capital preservation. PYACX invests more than 80% of its assets in various corporate debt securities.
PYACX has an annual expense ratio of 0.65%, lower than the category average of 0.71%. The fund has YTD, one-year and three-year annualized returns of 8.1%, 9% and 7.3%, respectively. It has a Zacks Mutual Fund Rank #1 and an annual dividend yield of 2.8%.
MFS Corporate Bond R4 (MFBJX - Free Report) invests a bulk of its assets in investment-grade debt securities. MFBJX seeks return through income and capital growth.
MFBJX has an annual expense ratio of 0.57%, lower than the category average of 0.71%. The fund has YTD, one-year and three-year annualized returns of 8%, 8% and 5.4%, respectively. The fund has a Zacks Mutual Fund Rank #1 and an annual dividend yield of 3.3%.
Fidelity Corporate Bond (FCBFX - Free Report) seeks growth of income. FCBFX invests a large chunk of its assets in various corporate debt securities including investment-grade corporate bonds. The fund invests both in U.S. and non-U.S. companies.
FCBFX has an annual expense ratio of 0.45%, lower than the category average of 0.71%. The fund has YTD, one-year and three-year annualized returns of 8.4%, 7.9% and 5.8%, respectively. It has a Zacks Mutual Fund Rank #2 and an annual dividend yield of 3%.
Columbia Corporate Income Z (SRINX - Free Report) invests the majority of its assets in corporate and non-government issued debt securities. SRINX also invests more than 60% of its assets in investment grade securities. The fund seeks appreciation of capital and income.
SRINX has an annual expense ratio of 0.68%, lower than the category average of 0.71%. The fund has YTD, one-year and three-year annualized returns of 9.6%, 8.7% and 4.7%, respectively. It has a Zacks Mutual Fund Rank #2 and an annual dividend yield of 3%.
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 >>