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5 Best-Performing High-Yield Mutual Funds of First-Half 2018

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The S&P 500 and the Nasdaq recorded positive performances in the first half of 2018, while the Dow ended in the red. Continued tariff-related tensions between the United States and its key trade partners dampened investors’ sentiment.

Given the negative outlook, high-yield bonds or junk bonds make profitable investment options now. After all, these bonds have a shorter maturity period and yield better returns as compared to other bonds and equities.

Mixed Performance in First-Half 2018

In the first half of the year, the Dow declined 1.8%, while the S&P 500 and the Nasdaq increased 1.7% and 8.8%, respectively. After an outstanding 2017, markets touched record highs in January. However, the joyride came to a halt in the next few months, when Trump announced his plans to impose trade tariffs on foreign imports.

Looming trade war between the United States and once allies Canada and Mexico, and other major economies like the European Union and China made investors nervous and led to huge selloffs.

Additionally, in its June policy meeting, the Fed increased its benchmark federal funds rate in the range of 1.75% to 2%, marking the sixth rate hike undertaken by the central bank since 2015. Moreover, the Fed hinted one more rate hike in the second half and stated that it is likely to increase rate three times instead of two in 2019.

In this respect, one can go for high-yield bonds that have a comparatively higher coupon rate and shorter maturity period, due to which it remains less susceptible to any rate fluctuation. 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 yield better returns and lower maturities as compared to investment-grade bonds.

5 High-Yield Bond Funds in Focus

We therefore suggest investors to consider placing their money on high-yield mutual funds instead. Thanks to the aforementioned factors, this year is certainly threatened by uncertainty, which calls for investing in high-yield paying mutual funds.

Companies that pay high dividends put a ceiling on economic uncertainty. These companies have steady cash flows and are mostly financially stable and mature, which help their stock prices to increase gradually over a period of time. Moreover, dividends are less taxed as compared to interest income which helps one’s portfolio to grow at a compounded rate and stay protected against earnings manipulation.

In this respect, 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 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 YTD returns. The minimum initial investment is within $5000. Also, these funds have low expense ratios and no sales loads.

Northern Multi-Manager High Yield Opportunities (NMHYX - Free Report) invests a bulk of its assets in various fixed-income securities, including bonds which are rated lower than investment grade. The adviser of the fund uses a "multi-manager" approach. NMHYX invests its assets in fixed-income securities of domestic as well as foreign companies based in emerging markets.

NMHYXhas a Zacks Mutual Fund Rank #2. The fund carries an expense ratio of 0.86% compared with the category average of 0.98%. Moreover, NMHYX requires a minimal initial investment of $2,500. The fund has returned0.3% YTD.

Further, Christopher E. Vella is the fund manager of NMHYX since 2012. The annual dividend yield of the fund is 6.2%.

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 has a Zacks Mutual Fund Rank #2. The fund carries an expense ratio of 0.35% compared with the category average of 0.98%. Moreover, HIGFX requires a minimal initial investment of $250. The fund has returned0.1% YTD.

Further, David A. Daigle is one of the fund managers of HIGFX since 2003. The annual dividend yield of the fund is 5.8%.

Putnam Diversified Income Y (PDVYX - Free Report) seeks maximization of income consistent with capital preservation. PDVYX invests primarily in securitized debt securities and other obligations that are rated investment-grade or lower. These debt instruments are issued by companies and governments based globally.

PDVYX has a Zacks Mutual Fund Rank #2. The fund carries an expense ratio of 0.75% compared with the category average of 1.05%. Moreover, PDVYX requires a minimal initial investment of $0. The fund has returned2.2% YTD.

Further, D. William Kohli is one of the fund managers of PDVYX since 1994. The annual dividend yield of the fund is 5.6%.

Fidelity High Income (SPHIX - Free Report) seeks maximization of income as well as capital growth. The fund invests mainly in income-generating debt securities, convertible bonds and preferred stocks. SPHIX invests specifically in companies which have a weak financial position. It invests in both U.S. and non-U.S. companies.

SPHIX has a Zacks Mutual Fund Rank #1. The fund carries an expense ratio of 0.72% compared with the category average of 0.98%. Moreover, SPHIX requires a minimal initial investment of $2,500. The fund has returned0.3% YTD.

Further, Fred Hoff is the fund manager of SPHIX since 2000. The fund’s annual dividend yield is 5.3%.

BlackRock High Yield Bond Portfolio Service Shares (BHYSX - Free Report) seeks to boost total returns on investment. BHYSX invests a bulk of its assets in non-investment grade bonds (high-yield bonds), which have maturity of 10 years or lower. It invests about 30% of its assets in foreign currency denominated issuers located offshore.

BHYSX has a Zacks Mutual Fund Rank #1. The fund carries an expense ratio of 0.93% compared with the category average of 0.98%. Moreover, BHYSX requires a minimal initial investment of $5,000. The fund has returned0.1% YTD.

Further, James Keenan is one of the fund managers of BHYSX since 2007. The annual dividend yield of the fund is 5.1%.

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