Mutual funds that seek to provide impressive returns by investing in below investment-grade bonds, also known as junk bonds, are generally known as high yield bond mutual funds. These funds are expected to provide higher returns than those investing in investment-grade securities. Moreover, the high yield feature of junk bonds makes them less vulnerable to interest rate fluctuations. Though junk bonds are considered riskier than investment-grade debt securities, mutual funds maintaining a well-diversified portfolio of such securities may reduce the level of risk.
Below we share with you four 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 to view their Zacks Rank and past performance.
Fidelity Capital & Income Fund (MUTF:FAGIX) primarily focuses on acquiring debt securities that are rated below investment grade. FAGIX also invests in equity securities of companies that are facing unfavorable financial conditions throughout the globe. Factors such as industry position and economic condition are considered before investing in a security. Fidelity Capital & Income Fund has returned 13.6% over the last one-year period.
FAGIX has an expense ratio of 0.74% compared with the category average of 1.00%.
MassMutual Premier High Yield Fund (MUTF:DLHYX) invests the lion's share of its assets in high yielding fixed income producing securities that are unrated or are rated below investment grade. DLHYX invests in securities that are rated lower than Baa3 and BBB- by Moody's and Standard & Poor's, respectively. MassMutual Premier High Yield Fund seeks high level of income. MassMutual Premier High Yield Fund Service has returned 12.6% over the last one-year period.
As of March 2017, DLHYX held 188 issues, with 2.23% of its assets invested in Coveris Holdings SA 144A 7.875%.
Nuveen High Income Bond Fund A (MUTF:FJSIX) invests a majority of its assets in lower rated bonds commonly known as "junk bonds". The fund may also invest a maximum of 20% of its assets in fixed and floating rate loans. Further, it may invest in exchange-traded funds, closed-end funds and investment companies. Nuveen High Income Bond Fund A has returned 15.2% over the last one-year period.
John Fruit is one of the fund managers of FJSIX since 2005.
Waddell & Reed Advisor High-Income Fund (MUTF:WYHIX) seeks appreciation of income and capital. WYHIX focuses on investing in a well-diversified portfolio, which includes fixed-income securities. These securities are rated below investment grade and offer a high yield. Waddell & Reed Advisor High-Income Fund returned 13.2% over the last one-year period.
WYHIX has an expense ratio of 0.74% compared with the category average of 1.00%.