High-yield bond funds have finally rebounded from the record
outflow they witnessed for about a month. Threat of an
interest-rate rise and the winding down of monetary stimulus had
left investors fleeing the sector till early August. The first week
of August was noticeable with high yield funds witnessing a record
$7.1 billion outflow. Bank of America Merrill Lynch said it was the
biggest outflow ever in dollar terms.
However, the current data shows that the high-yield asset class has
seen the highest inflows since September last year. This was also
the second straight week of inflows into high-yield bond funds.
Stock funds too witnessed inflows for two straight weeks and
inflows for the week ending Aug 20 were the biggest since June.
The trend does suggest that investors are back to take more risk.
Stock markets have been rallying of late and the benchmarks hit
record highs on Aug 21. Meanwhile, the latest Fed minutes gave no
clear indication about the timing of a rate hike as policymakers
had differing views.
If investors are keen on taking risk again, we will suggest 3
top-ranked high-yield bond funds that are likely to outperform
their peers. Before doing so, let's see how things have shaped up.
Record Outflows & the Turnaround
Lipper reported a record $7.1 billion retail-cash outflows from
high-yield funds in the week ending Aug 6. This outflow broke the
previous record outflow of $4.63 billion in Jun 2013. Also,
high-yield bond funds saw $12.6 billion of outflow for four weeks,
making the four-week trailing average stand at a record $3.15
A Lipper official had said: "This past week, investors took their
collective foot off the gas pedal, weighing the implications of
strong economic growth and what effect increasing wage inflation
might have on the Federal Reserve's interest-rate policy."
A combination of negatives had caused investors to flee to safety
by purchasing U.S. and German bonds. This had caused the
yields of major bonds to decline, as bond yields decline as prices
go up, and bond yields go up while prices go down. (Read:
Bond Prices Rise as Chaos Rules in Europe and
The geopolitical tensions related to the Russia-Ukraine crisis had
kept investors jittery. (Read:
MH17 Crash, Fresh US Sanctions: Beware of Funds
with Russia Exposure
). Separately, economic data had been dismal in Europe.
However, the turnaround is evident now with two weeks of inflows
into high-yield junk bond funds. According to Thomson Reuters'
Lipper service, investors put $2.2 billion into high-yield junk
bond funds in the week ending Aug 20. Stock funds attracted $9.9
billion in the same period. Stocks mutual funds saw inflows of $1.3
billion, reversing the four-week outflow streak.
Also, Taxable bond funds attracted $6.7 billion, the biggest inflow
since February. Emerging market debt funds saw $183 million worth
3 High-Yield Bond Funds to Buy Now
Here we will share with you 3
High Yield - Bond funds
with no sales load and high year-to-date return.
The funds below carry a
Zacks Mutual Fund Rank #1 (Strong Buy)
. Remember, the goal of the Zacks Mutual Fund Rank is to guide
investors to identify potential winners and losers. Unlike most of
the fund-rating systems, the Zacks Mutual Fund Rank is not just
focused on past performance, but the likely future success of the
Third Avenue Focused Credit Investor
(TFCVX) seeks total return over the long run that may comprise
investment returns from various sources including growth of
capital. The fund invests a lion's share of its assets in bonds and
other credit instruments that are rated below investment grade. The
non-diversified fund may invest significantly in distressed and
The fund has returned 8.9% year to date. Also, the fund has healthy
one and three-year returns of 16.6% and 13.6%, respectively.
Loomis Sayles High Income Y
(NEHYX) seeks high current income and the prospect for growth of
capital. It invests a minimum of 65% of its assets in fixed-income
securities with junk ratings. A minimum of 65% is invested in US
corporate or dollar-denominated foreign fixed-income securities. A
maximum of 30% may be invested in foreign currency-denominated
The fund has returned 7.5% year to date. Also, the fund has healthy
one and three-year returns of 13.7% and 10.6%, respectively.
Wells Fargo Advantage High Yield Bond
(EKHYX) seeks total return that includes high current income and
capital growth. It invests most of its assets in high-yield, below
investment grade rated debt securities. The fund portfolio is not
managed by the fund till a specific maturity.
The fund has returned 6.6% year to date. Also, the fund has healthy
one and three-year returns of 11.6% and 9.4%, respectively.
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 in our
Mutual Fund Center
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