Top Ranking High Yield Funds - Best of Funds


Yield is accepted as one of the best measures for investors seeking regular income from their investment choices. For bond investors, this is the interest income from securities. On the other hand dividends from income producing stocks are the route via which investors in equity expect to receive income.


Yield is usually measured over a specific period of time. It only accounts for interest or dividend income and does not include capital appreciation. Even though the income produced may be for a specific period of time, it is represented as an annualized figure. This is because it is expected that the same level of income will be returned in the future.

Yield vs YTD Return

This implies that yield is a forward-looking metric and is prospective in nature. This is
in contrast to year-to-date return which also takes into account capital gains. This is why it is often described as the total return from an investment. It is also essentially a measure of past performance and represents earnings accrued during a specific period in the past.

Mutual Funds Investing in Derivatives

Mutual funds often invest in derivatives in order to manage risk or enhance returns.
Another goal may be to gain exposure to assets which the fund cannot directly invest in. Normally, a small portion of total assets are allocated towards this purpose. However, some mutual funds may exclusively invest in derivatives. This is a common strategy when tracking an index, such as the Dow Jones or S&P 500.  The derivatives utilized in these cases are usually options or futures contracts

In some cases, however, fund managers may have more aggressive goals. They may seek to outperform daily returns from indices by a large degree. In this case even small gains in the benchmark may result in high returns. At the same time, losses are also amplified.

Despite this drawback, the steadily rising population of retired individuals will continue to opt for such investment choices. This is because they carry the promise of higher income. In some cases, this results in funds who not only have impressive yield numbers but also high YTD returns.

Below we are presenting three mutual funds with the best possible Zacks Rank, each of which has impressive yields as well high YTD returns.

Mutual Fund Picks

PIMCO Fundamental IndexPLUS AR A (PIXAX)

Launched in June 2005, the fund has total assets of $3.08 billion. The fund aims to provide total returns which are greater than that of the S&P 500. It invests in Enhanced RAFI US Large derivatives. The Enhanced RAFI US Large is constructed using a proprietary approach developed by Research Affiliates, LLC. The fund has a yield of 9.61%.

The fund holds 883 assets and the asset is most invested in is Erauslt Trs Equity 1ml+26.5 *Bullet* Brc, which makes up 34.78% of its assets. The next two, FNMA and Erauslt Trs Equity 1ml+35 Jpm, together make up 21.34% of its assets. The fund has a year-to-date return of 27.82% and has a Zacks Rank #1 (Strong Buy).

PIMCO CommoditiesPLUS Short Strategy A (PCCAX)

This is a much smaller fund with total assets of $12.79 million and was launched in September 2010. It invests in short positions on the Dow Jones-UBS Commodity Index Total Return. The fund maintains these short positions using a mix of commodity-linked derivatives. The fund has a yield of 8.81%.

The fund holds 50 assets and its top 10 holdings account for 21.40% of its investments. The asset it is most invested in is Pimco Cayman Commodity Fund Iv, Ltd, which makes up 14.17% of its assets. The next two, Fore Clo Ltd 2007-I FRN and US Treasury Note, together make up 3.26% of its assets. The fund has a year-to-date return of 9.51% and has a Zacks Rank #1 (Strong Buy).

PIMCO International StocksPLUS AR Strategy (Unhedged) A (PPUAX)

Launched in November 2006, this is a large fund with total assets of $1.41 billion. The fund invests primarily in foreign equity derivatives. These derivatives are backed by a portfolio consisting of fixed income instruments. A maximum of 20% of its assets may be invested in junk bonds with a minimum rating of "B". The fund has a yield of 8.15%.

The fund holds 697 assets and the asset it is most invested in is Efa Up Trs Equity 3ml+30 *Bullet* Bps which makes up 33.31% of its assets. The next two, Efa Up Trs Equity 3ml+0 Boa and Efa Up Trs Equity 3ml-15 Bps, together make up 46.61% of its assets. The fund has a year-to-date return of 16.97% and has a Zacks Rank #2 (Buy).

Despite investing in derivatives, these funds have strong yield patterns as well as impressive YTD returns. This is why these make for excellent choices to add to your portfolios.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Mutual Funds

Referenced Stocks: PCCAX , PIXAX , PPUAX

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