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5 Best-Performing High-Yield Mutual Funds of Q1

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Both the Dow and the S&P 500 finished the first quarter in the red. After strong growth in the first month of this year, all the three indexes entered correction territory in February and then registered a sharp decline in March following the tech slump and trade war fears. The decline in the key indexes resulted in a large departure of investors not only from equities but also bonds.

In fact, a key index, Bloomberg Barclays U.S. Corporate High Yield Bond Index, slumped in the first quarter, registering a decline in the first quarter of a year for the first time since the recession-hit 2008. However, the high yield mutual funds recently posted their best weekly inflows since December 2016.

Thanks to this turn around, high yield bonds or junk bonds might be considered sensible investment options.  After all, these bonds have a shorter maturity period and better returns as compared to other bonds.

Why Invest in High Yield Bond Funds?

Both the Dow and the S&P lost 2.3% and 1.2%, respectively, in the first quarter. Moreover, Wall Street’s “fear gauge” the VIX surged 81% over the first quarter, its biggest quarterly increase since 2011, according to the WSJ Market Data Group. Following the high level of volatility in markets, Bloomberg Barclays U.S. Corporate High Yield Bond Index reported a decline of 0.86% in the first quarter.

However, high-yield bond funds witnessed inflows of $2.97 billion for the week ended Apr 18, according to Lipper. Although, the fund category registered strong outflows the following week due to record high 10-year Treasury yields, it is expected that investors will move over this recent development and focus on high yield bond funds. In this context, it is important to understand its efficacies.

Mutual funds that aim to offer attractive returns by investing in below investment-grade bonds, also known as junk bonds, are generally known as high-yield bond mutual funds. High-yield bonds are considered to have better returns and lower maturities as compared to investment-grade bonds. Also, junk bonds have a comparatively higher coupon rate and shorter maturity period, due to which it remains less susceptible to any rate fluctuation.

5 High-Yield Bond Funds in Focus

We have selected five mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). 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.

These funds have encouraging one-year and three-year annualized returns. The minimum initial investment is within $5000. Also, these funds have low expense ratios and no sales loads.

Ivy High Income N (IHIFX - Free Report) seeks to offer returns through growth of income and capital. IHIFX maintains a diversified portfolio by investing mainly in high-risk, high-yield fixed-income securities. The fund may invest almost all its assets in foreign securities issued in dollar or foreign currencies.

IHIFX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.56%, lower than the category average of 1.10%. The fund has one-year and three-yearannualized returns of 5.9% and 5.3%, respectively. The annual dividend yield of the fund is 7%.

MainStay MacKay High Yield Corporate Bond Fund (MHYSX - Free Report) seeks maximization of income through a diversified portfolio of high-yield debt securities that are unrated or rated lower than investment-grade. MHYSX invests a large chunk of its assets in both U.S. and non-U.S. corporate bonds that offer high yields.

MHYSX, with a Zacks Mutual Fund Rank #1, has an annual expense ratio of 0.59%, lower than the category average of 1.10%. The fund has one-year and three-yearannualized returns of 4.4% and 6%, respectively. The annual dividend yield of the fund is 6.4%.

Northern Multi-Manager High Yield Opportunity Fund (NMHYX - Free Report) seeks returns through growth of income and capital. NMHYX invests a huge part of its assets in fixed-income securities, including bonds that are rated lower than the investment-grade. These bonds are issued by mainly by U.S. companies and sometimes by foreign companies, including those based in emerging markets.

NMHYX, with a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.86%, lower than the category average of 1.10%. The fund has one-year and three-yearannualized returns of 4.3% and 5.1%, respectively. The annual dividend yield of the fund is 6.1%.

American Funds American High-Income Trust F3 (HIGFX - Free Report) invests primarily in debt securities that are rated Ba1 or lower, or BB+ or lower by Nationally Recognized Statistical Rating Organizations. The fund may also invest in securities of companies based outside the United States. HIGFX seeks to offer growth of income and capital.

HIGFX, with a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.35%, lower than the category average of 1.10%. The fund has one-year and three-yearannualized returns of 3.9% and 3.9%, respectively. The annual dividend yield of the fund is 5.7%.

Northern High Yield Fixed Income Fund (NHFIX - Free Report) seeks high growth of income. NHFIX invests a large portion of its assets in fixed-income securities, including lower quality bonds. The fund invests mainly in those low-rated securities that provide yields better than high-rated securities with similar kinds of maturity.

NHFIX, with a Zacks Mutual Fund Rank #2, has an annual expense ratio of 0.79%, lower than the category average of 1.10%. The fund has one-year and three-yearannualized returns of 4.3% and 4.1%, respectively. The annual dividend yield of the fund is 5.7%.

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