Those looking to invest in bonds rated lower than investment-grade can consider high-yield bonds or junk bonds. Mutual funds having significant exposure in high-yield bonds are expected to provide better returns than those investing in securities with higher ratings, including government and corporate bonds. Also, due to their higher-yield feature, junk bonds are believed to be less susceptible to interest rate fluctuations.
Although bonds rated below investment grade are believed to be riskier than investment grade bonds, a well-diversified portfolio of these securities reduce the risk of a portfolio. Thus mutual funds maintaining a portfolio of these securities are the best for investors as these allocate their assets in such securities from a wide range of sectors.
Below we share with you three top-ranked high-yield bond mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of high-yield bond mutual funds.
Fidelity Series High Income (FSHNX - Free Report) invests a large chunk of its assets in income-generating debt securities, convertible securities, and preferred stocks with more importance on high yield debt securities. The fund may also invest in non-income generating securities like common stocks and defaulted securities. Fidelity Series High Income has returned 5% in the last 12 months.
Fred Hoff is the fund manager of FSHNX since 2011.
BlackRock High Yield Bond Portfolio Investor A Shares (BHYAX - Free Report) seeks maximization of returns, consistent with a high level of income. BHYAX invests a bulk of its assets in high-yield bonds. The fund may invest a maximum of 30% of its assets in bonds of foreign issuers that are non-dollar denominated. The fund may also invest in convertible as well as preferred securities. BlackRock High Yield Bond Portfolio Investor A Shares has returned 3.2% over the past year.
BHYAX has an expense ratio of 0.94% compared with the category average of 1.00%.
American Funds American High-Income F2 (AHIFX - Free Report) invests mainly in debt securities that are rated BB+ or lower, or Ba1 or lower by Nationally Recognized Statistical Rating Organizations. AHIFX seeks to offer high level of income. American Funds American High-Income F2 has returned 3.8% in the past year.
As of June 2018, AHIFX held 721 issues, with 1.22% of its total assets invested in Clear Channel Worldwide Holdings Inc. 7.62%.
To view the Zacks Rank and past performance of all high-yield bond mutual funds, can click here to see the complete list of high-yield bond mutual funds.
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