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. Also, bond funds are considered good investment propositions in a low-rate environment.
Meanwhile, investors seeking to derive safe returns by investing in quality securities may consider short-term investment-grade mutual funds. These mutual funds invest in debt securities with maturity duration below five years. Though short-term bonds are believed to offer less returns than intermediate- and long-term ones, they have higher stability as shorter maturities are expected to reduce credit and interest rate risk.
Below we will share with you three top ranked short-term investment-grade bond mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (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 short-term investment-grade bond mutual funds, investors can click here to see the complete list of funds.
Principal Short-Term Income J (PSJIX - Free Report) seeks growth of income and stability of principal. PSJIX invests mainly in fixed-income debt securities, including high-quality, short-term bonds, which are rated Baa3 or higher by Moody's or BBB- or higher by S&P's Rating Service. The fund has maturity of less than five years. Principal Short-Term Income J has a year-to-date return of 1.7%.
As of June 2017, PSJIX held 472 issues, with 0.95% of its assets invested in Prudential Finl FRN.
Vanguard Short-Term Investment-Grade Investor (VFSTX - Free Report) seeks current income with a minimum level of volatility. VFSTX invests most of its assets in short-term debt securities that are rated investment grade. VFSTX invests in securities having ratings of A3 or higher. VFSTX may also invest in securities that are rated Baa1, Baa2, or Baa3, commonly known as medium-quality securities. VFSTX may also invest in intermediate-term securities but to a lesser extent. Vanguard Short-Term Investment-Grade Investor has a year-to-date return of 1.8%.
Gregory S. Nassour is the fund manager of VFSTX since 2008.
Deutsche Fixed Income Opportunities Fund S (SDUSX - Free Report) seeks to offer high income. SDUSX invests the lion’s share of its assets in securities issued by domestic as well as foreign government entities, corporate securities, mortgage-backed and asset-backed securities and tax-exempt municipal bonds. Deutsche Fixed Income Opportunities Fund Shas a year-to-date return of 2.8%.
SDUSX has an expense ratio of 0.84% compared with the category average of 1.12%.
To view the Zacks Rank and past performance of all short-term investment-grade bond mutual funds, investors can click here to see the complete list of funds.
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 >>