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.
Putnam High Yield Advantage A (PHYIX) invests a large share of its assets in domestic bonds rated below investment grade. The maturity period of these securities are three years or more. The fund may invest in derivatives to reduce risk or enhance returns. This high yield mutual fund returned 18.56% over the last one year period.
Robert L. Salvin is the fund manager and he has managed this high yield mutual fund since 2005.
Columbia High Yield Opportunity A (COLHX) seeks total returns. A majority of its assets are invested in high yield debt securities issued by domestic and foreign companies including companies from emerging markets. The high yield mutual fund returned 19.8% over the last one year period.
The high yield mutual fund has a minimum initial investment of $2,000 and an expense ratio of 1.11% compared to a category average of 1.13%.
American Century High-Yield (ABHIX) primarily invests in corporate bonds which provide high yields and other debt securities. A maximum of 40% of its assets may be utilized to purchase foreign debt securities. This high yield mutual fund returned 20.69% over the last one year period.
G. David MacEwen is the fund manager and he has managed this high yield mutual fund since 2008.
Invesco High Yield A (AMHYX) seeks total return. The fund invests the majority of its assets in debt securities rated below investment grade. Up to 25% of its assets may be used to purchase foreign securities and up to 15% may be invested in emerging market securities. This high yield mutual fund returned 19.72% over the last one year period.
As of June 2012, this high yield mutual fund held 421 issues, with 0.81% of its total assets invested in Tutor Perini 7.625%.
Transamerica High Yield Bond A (IHIYX) invests a large share of its assets in bonds with high risk providing high returns. It may also invest in cash, equivalent securities or short term debt instruments. This high yield mutual fund returned 20.58% over the last one year period.
The high yield mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.17% compared to a category average of 1.13%.
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.
View All Zacks #1 Ranked Mutual Funds
More From Zacks.com