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Mutual Fund Commentary

Including high yield bonds in a portfolio can offer diversification benefits which may outweigh the risks involved in many cases. High yield investments generally offer better returns than investment grade fixed income investments. The low level of correlation of these bonds with investments rated higher could even improve the overall alpha in a portfolio. High yield funds are often the preferred choice of investors for investing in this category, since they reduce the risk involved appreciably by holding a diversified basket of such securities.

Below we will share with you 5 top rated high yield funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect the fund to outperform its peers in the future. To view the Zacks Rank and past performance of all high yield funds, then click here.

Nuveen Preferred Securities A (NPSAX) invests the majority of its assets in preferred securities, more than half of which have been highly rated by an independent agency. Up to 35% of its assets may be used to purchase dollar denominated foreign securities. No more than 40% of its assets may be invested in securities rated below investment grade. This high yield fund returned 65% over the last one year period.

The high yield fund has a minimum initial investment of $3,000 and an expense ratio of 0.94% compared to a category average of 0.88%.

Fidelity High Income (SPHIX - MF report) seeks high levels of current income, but may also look to return capital gains. It focuses on debt securities of comparatively low quality and may also invest in preferred stocks and convertible securities. It is a no-load fund.

The fund returned 44.69% in 2009 and has a five year annualized return of 6.64%.

Rydex/SGI High Yield A (SIHAX) invests at least 80% of its assets rated in a wide range of high-yield debt securities. These are securities generally rated below the top four investment grades by ratings firms. Up to 10% of the securities purchased by this fund may be in default at the time of purchase. The fund has a three year annualized return of 6.45%.

As of January 2010, this high yield fund held 184 issues, with 2.35% of its total assets invested in Energy Xxi Gulf Coast 10%.

Northeast Investors (NTHEX - MF report) primarily seeks to generate income. It focuses on purchasing debt securities rated below investment grade or similar unrated securities. The fund has a ten year annualized return of 4.4%.

Ernest E. Monrad is the fund manager and he has managed this high yield fund since 1960.

MFS High Yield Opportunities A (MHOAX - MF report) invests a large share of its assets in debt securities which generate high levels of income. The fund may purchase foreign securities, including those issued from emerging markets. The fund returned 49.74% over the last one year period

The fund has an expense ratio of 0.95% compared to a category average of 1.21%.

To view the Zacks Rank and past performance of all high yield funds, then click here.

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds/mutualfund/

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