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5 Taxable Bond Funds to Ride on 3 Straight Weeks of Inflow
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Investors’ interest has evidently shifted from equity funds to taxable bond funds over the last few weeks. Taxable bond funds registered three consecutive weeks of inflows last week, according to the latest Lipper’s fund flow report. Additionally, data from the Investment Company Institute (ICI) for the week ended Mar 29 showed that taxable bond funds posted 17 straight weeks of inflows.
Taxable bond funds are debt securities whose interest income is taxable at state or federal levels. Funds from this category have higher risks as well as better yields than government bond funds. Hence, investing in taxable bond funds might be a wise investment option for bond fund investors willing to take on additional risk in search of higher returns.
Taxable Bond Funds Register Stable Inflows
As per the latest Lipper weekly fund flow report, equity-based funds saw the biggest weekly outflow this year, whereas taxable bond funds have been hogging attention. According to Lipper, taxable bond funds registered net inflows of $4.3 billion for the week ended Apr 5, preceded by an inflow of $5.6 billion a week earlier. The category saw inflows for three consecutive weeks after registering outflows of $5 billion for the week ended Mar 15. Additionally, ICI reported that taxable bond funds witnessed estimated inflows of $5.69 billion for the week ended Mar 29.
Moreover, as per Fed minutes released last week, some of the central bank’s policymakers are of the opinion that equity markets were significantly overvalued. A closer examination of Fed minutes from 1996 reveals that Fed concerns about valuations have been subsequently borne out by actual events in equity markets, according to data analytics company Kensho. In this context, investors may prefer bond funds over equity funds.
Why Buy Taxable Bond Funds?
Taxable bonds are fixed-income securities issued by the country or state, whose income is not tax-exempt. These kinds of bonds are used to fund a particular project or facility. Taxable bond funds are likely to yield better results banking on improving manufacturing and services activity and continued job creation. So, mutual funds with strong exposure to various taxable bonds are considered prudent investment options in an environment of steadily rising GDP.
According to Morningstar, all the categories of taxable bond funds have generated encouraging year-to-date (YTD) and three-month returns. The emerging markets bond funds returned 4.6% and 3.8% over the YTD and three-month time frame, respectively. Also, long-term bond funds reported YTD and three-month returns of a respective 3.2% and 1.6%. Further, long-term government funds managed to register YTD and three-month returns of 3.2% and 1%, respectively.
Buy These 5 Taxable Bond Mutual Funds
This encouraging backdrop calls for investors to focus their attention on five taxable bond mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) and have encouraging yields. Moreover, these funds have impressive YTD and three-month returns. They also have minimum initial investment within $5000 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.
USAA High Income (USHYX - Free Report) aims to provide total return through current income and capital growth. It focuses on investing in dollar denominated non-investment-grade debt securities. Along with domestic securities, USHYX may also invest without limit in dollar-denominated foreign securities.
USHYX has an annual expense ratio of 0.82%, lower than the category average of 1.05%. The fund has YTD and three-month returns of 3.1% and 2%, respectively. Annual dividend yield of the fund is 5.3%.
Fidelity Advisor Emerging Markets Income A invests a major portion of its assets in debt securities of companies based in emerging markets and other investments that are linked economically to these markets. FMKAX seeks growth of income and capital.
FMKAX has an annual expense ratio of 1.13%, lower than the category average of 1.15%. The fund has YTD and three-month returns of 5% and 3.8%, respectively. Annual dividend yield of the fund is 4.9%.
Fidelity Mortgage Securities (FMSFX - Free Report) invests a bulk of its assets in U.S. government securities and mortgage-related securities that are investment-grade rated. FMSFX seeks growth of income, which is consistent with prudent investment risk.
FMSFX has an annual expense ratio of 0.45%, lower than the category average of 0.80%. The fund has YTD and three-month returns of 0.7% and 0.5%, respectively. Annual dividend yield of the fund is 2.2%.
Lord Abbett High Yield A (LHYAX - Free Report) invests a large proportion of its assets in corporate bonds rated below investment-grade and convertible securities. A maximum of 20% of its assets are invested in foreign securities which are internationally traded. LHYAX seeks high level of return through growth of income and capital.
LHYAX has an annual expense ratio of 0.92%, lower than the category average of 1.05%. The fund has YTD and three-month returns of 3.2% and 2%, respectively. Annual dividend yield of the fund is 5.2%.
Schwab Total Bond Market seeks high level of income by primarily investing in a portfolio that is designed to track the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. SWLBX normally invests a majority of its assets in debt instruments of varying maturities, with key focus on investment-grade securities. It may also invest in fixed-, variable- or floating-rate debt instruments, U.S. and non-U.S. mortgage-backed and asset-backed securities, and high yield bonds.
SWLBX has an annual expense ratio of 0.29%, lower than the category average of 0.80%. The fund has YTD and three-month returns of 1.1% and 0.7%, respectively. Annual dividend yield of the fund is 1.9%.
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5 Taxable Bond Funds to Ride on 3 Straight Weeks of Inflow
Investors’ interest has evidently shifted from equity funds to taxable bond funds over the last few weeks. Taxable bond funds registered three consecutive weeks of inflows last week, according to the latest Lipper’s fund flow report. Additionally, data from the Investment Company Institute (ICI) for the week ended Mar 29 showed that taxable bond funds posted 17 straight weeks of inflows.
Taxable bond funds are debt securities whose interest income is taxable at state or federal levels. Funds from this category have higher risks as well as better yields than government bond funds. Hence, investing in taxable bond funds might be a wise investment option for bond fund investors willing to take on additional risk in search of higher returns.
Taxable Bond Funds Register Stable Inflows
As per the latest Lipper weekly fund flow report, equity-based funds saw the biggest weekly outflow this year, whereas taxable bond funds have been hogging attention. According to Lipper, taxable bond funds registered net inflows of $4.3 billion for the week ended Apr 5, preceded by an inflow of $5.6 billion a week earlier. The category saw inflows for three consecutive weeks after registering outflows of $5 billion for the week ended Mar 15. Additionally, ICI reported that taxable bond funds witnessed estimated inflows of $5.69 billion for the week ended Mar 29.
Moreover, as per Fed minutes released last week, some of the central bank’s policymakers are of the opinion that equity markets were significantly overvalued. A closer examination of Fed minutes from 1996 reveals that Fed concerns about valuations have been subsequently borne out by actual events in equity markets, according to data analytics company Kensho. In this context, investors may prefer bond funds over equity funds.
Why Buy Taxable Bond Funds?
Taxable bonds are fixed-income securities issued by the country or state, whose income is not tax-exempt. These kinds of bonds are used to fund a particular project or facility. Taxable bond funds are likely to yield better results banking on improving manufacturing and services activity and continued job creation. So, mutual funds with strong exposure to various taxable bonds are considered prudent investment options in an environment of steadily rising GDP.
According to Morningstar, all the categories of taxable bond funds have generated encouraging year-to-date (YTD) and three-month returns. The emerging markets bond funds returned 4.6% and 3.8% over the YTD and three-month time frame, respectively. Also, long-term bond funds reported YTD and three-month returns of a respective 3.2% and 1.6%. Further, long-term government funds managed to register YTD and three-month returns of 3.2% and 1%, respectively.
Buy These 5 Taxable Bond Mutual Funds
This encouraging backdrop calls for investors to focus their attention on five taxable bond mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) and have encouraging yields. Moreover, these funds have impressive YTD and three-month returns. They also have minimum initial investment within $5000 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.
USAA High Income (USHYX - Free Report) aims to provide total return through current income and capital growth. It focuses on investing in dollar denominated non-investment-grade debt securities. Along with domestic securities, USHYX may also invest without limit in dollar-denominated foreign securities.
USHYX has an annual expense ratio of 0.82%, lower than the category average of 1.05%. The fund has YTD and three-month returns of 3.1% and 2%, respectively. Annual dividend yield of the fund is 5.3%.
Fidelity Advisor Emerging Markets Income A invests a major portion of its assets in debt securities of companies based in emerging markets and other investments that are linked economically to these markets. FMKAX seeks growth of income and capital.
FMKAX has an annual expense ratio of 1.13%, lower than the category average of 1.15%. The fund has YTD and three-month returns of 5% and 3.8%, respectively. Annual dividend yield of the fund is 4.9%.
Fidelity Mortgage Securities (FMSFX - Free Report) invests a bulk of its assets in U.S. government securities and mortgage-related securities that are investment-grade rated. FMSFX seeks growth of income, which is consistent with prudent investment risk.
FMSFX has an annual expense ratio of 0.45%, lower than the category average of 0.80%. The fund has YTD and three-month returns of 0.7% and 0.5%, respectively. Annual dividend yield of the fund is 2.2%.
Lord Abbett High Yield A (LHYAX - Free Report) invests a large proportion of its assets in corporate bonds rated below investment-grade and convertible securities. A maximum of 20% of its assets are invested in foreign securities which are internationally traded. LHYAX seeks high level of return through growth of income and capital.
LHYAX has an annual expense ratio of 0.92%, lower than the category average of 1.05%. The fund has YTD and three-month returns of 3.2% and 2%, respectively. Annual dividend yield of the fund is 5.2%.
Schwab Total Bond Market seeks high level of income by primarily investing in a portfolio that is designed to track the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. SWLBX normally invests a majority of its assets in debt instruments of varying maturities, with key focus on investment-grade securities. It may also invest in fixed-, variable- or floating-rate debt instruments, U.S. and non-U.S. mortgage-backed and asset-backed securities, and high yield bonds.
SWLBX has an annual expense ratio of 0.29%, lower than the category average of 0.80%. The fund has YTD and three-month returns of 1.1% and 0.7%, respectively. Annual dividend yield of the fund is 1.9%.
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 >>