For the average investor, high yield mutual funds are the best method to invest in bonds rated below investment grade, popularly known as junk bonds. This is because these funds hold a wide range of such securities, significantly reducing portfolio risk. In addition, these funds provide better returns than investments with higher ratings, including government and corporate bonds. Further, because the yield from such bonds is higher than investment grade securities, these investments are less susceptible to interest rate fluctuations.
Below we will share with you 5 top rated high yield mutual funds. Each has earned a Zacks #1 Rank (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 high yield funds, investors can click here to see the complete list of funds.
Vanguard High-Yield Corporate (VWEHX) invests the majority of its assets in a wide range of corporate bonds which are rated medium or low in terms of credit quality. These bonds usually have medium or short term maturity periods. This high yield mutual fund returned 7.31% over the last one year period.
The high yield mutual fund has a minimum initial investment of $3,000 and an expense ratio of 0.23% compared to a category average of 1.16%.
Columbia High Yield Bond A (INEAX) seeks high current income. A large share of the fund’s assets is utilized to purchase debt securities rated below investment grade. Not more than 25% of its assets are utilized to purchase foreign high-yield debt securities. This high yield mutual fund returned 5.95% over the last one year period.
As of April 2012, this high yield mutual fund held 347 issues, with 2.57% of its total assets invested in Columbia Short-Term Cash.
MassMutual Premier High Yield A (MPHAX) invests the majority of its assets in domestic fixed income securities with relatively lower ratings. These include corporate bonds, asset backed instruments and U.S. government securities. This high yield mutual fund returned 6.24% over the last one year period.
Scott D. Roth is the fund manager and he has managed this high yield mutual fund since 2010.
Thrivent High Yield Fund A (LBHYX) seeks high current income. The fund invests heavily in a wide range of high-yield debt securities with ratings equal to or below “BB” as per S&P or ‘Ba” as per Moody’s. This high yield mutual fund returned 5.88% over the last one year period.
The high yield mutual fund has a minimum initial investment of $1,000 and an expense ratio of 0.84% compared to a category average of 1.16%.
Northern High Yield Fixed Income (NHFIX) invests a large proportion of its assets in corporate bonds rated below investment-grade and other fixed-income securities. The fund focuses on purchasing domestic debt securities but may also invest in foreign debt instruments. This high yield mutual fund returned 4.75% over the last one year period.
Richard J. Inzunza is the fund manager and he has managed this high yield mutual fund since 2007.
To view the Zacks Rank and past performance of all high yield mutual funds, investors can click here to see the complete list of funds.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds.
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