For the average investor, high yield mutual funds are the best method to invest in bonds rated below investment grade, popularly known as junk bonds. This is because these funds hold a wide range of such securities, significantly reducing portfolio risk. In addition, these funds provide better returns than investments with higher ratings, including government and corporate bonds. Further, because the yield from such bonds is higher than investment grade securities, these investments are less susceptible to interest rate fluctuations.
Below we will share with you 4 top rated high yield bond mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all high yield bond funds, investors can click here to see the complete list of funds.
Touchstone High Yield A (THYAX - Free Report) seeks to provide a high level of income. THYAX invests majority of its assets in non-investment grade debt instruments of issuers located in the U.S. THYAX emphasizes to invest in lower quality debt securities, popularly known as "junk bonds". These securities are rated below BBB- by S&P and Fitch or below Baa3 by Moody's. The Touchstone High Yield A fund has a three-year annualized return of 6.1%.
As of March 2015, THYAX held 287 issues, with 1.30% of its total assets invested in Gmac 8%.
Dreyfus High Yield A (DPLTX - Free Report) invests a large chunk of its assets in fixed income securities. DPLTX is expected to provide maximum total return by investing in securities that are rated below investment grade by The Dreyfus Corporation. The Dreyfus High Yield A fund has a three-year annualized return of 6.8%.
DPLTX has an expense ratio of 0.95% compared to a category average of 1.07%.
Fidelity Focused High Income (FHIFX - Free Report) seeks high income with long-term capital growth. FHIFX focuses on investing in low-quality debt securities that are expected to provide return, preferred stocks, and convertible securities. FHIFX may also invest in non-income producing securities such as defaulted securities and common stocks, and may also invest in higher credit quality securities. FHIFX is expected to invest in securities throughout the globe. The Fidelity Focused High Income fund has a three-year annualized return of 5.5%.
Matthew Conti is the fund manager and he has managed FHIFX since 2004.
Columbia High Yield Bond A (INEAX - Free Report) invests a lion’s share of its assets in high-yield debt securities, commonly known as "junk bonds". INEAX invests a maximum of one-fourth of its assets in debt securities of non-U.S. issuers. INEAX seeks to provide high level of current income by investing in debt securities irrespective of their maturity durations. The Columbia High Yield Bond A fund has a three-year annualized return of 7.1%.
As of December 2014, INEAX held 395 issues, with 1.53% of its total assets invested in Ally Financial 8%.
To view the Zacks Rank and past performance of all high yield bond mutual funds, investors can click here to see the complete list of funds.
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. Pick the best mutual funds with the Zacks Rank.