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.
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%.
