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, then click here.
American Century High-Yield (NASDAQ: ABHIX – News ) seeks high current income with a secondary objective of capital appreciation. The fund utilizes the majority of its assets to purchase high yield corporate bonds and income generating convertible and preferred securities. The high yield mutual fund has a five year annualized return of 6.08%.
The high yield mutual fund has a minimum initial investment of $2,500 and an expense ratio of 0.79% compared to a category average of 1.14%.
MassMutual Premier High Yield A (NASDAQ: MPHAX – News ) invests a large proportion of its assets fixed income securities with relatively lower ratings. The fund may also purchase convertible securities, preferred stocks and invest in warrants and bank borrowings. The average dollar weighted maturity period varies from four to ten years. The high yield mutual fund has a five year annualized return of 4.91%.
Scott D. Roth is the fund manager and she has managed this high yield mutual fund since 2010.
Columbia High Yield Bond A (NASDAQ: INEAX – News ) seeks high current income. The majority of the fund’s assets are utilized to purchase debt securities rated below investment grade. Not more than 25% of its assets are invested in foreign high-yield debt instruments. The high yield mutual fund has a five year annualized return of 3.76%.
As of November 2011, this high yield mutual fund held 299 issues, with 1.81% of its total assets invested in Ally Finl 8%.
Touchstone High Yield A (NASDAQ: THYAX – News ) invests a large proportion of its assets in debt securities rated below investment grade. The fund focuses on acquiring high yield securities issued by companies from the U.S. The fund aims for an average maturity period varying form six to ten years. The high yield mutual fund has a five year annualized return of 6.9%.
The high yield mutual fund has a minimum initial investment of $2,500 and an expense ratio of 1.05% compared to a category average of 1.14%.
Fidelity Focused High Income (NASDAQ: FHIFX – News ) seeks high income. The fund primarily invests in income generating debt securities. The fund may invest in securities which do not yield income, such as common stocks. The high yield mutual fund has a five year annualized return of 6.03%.
Matt Conti is the fund manager and he has managed this high yield mutual fund since 2004.
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
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