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5 Best-Performing Taxable Bond Funds to Buy Now


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In the past few weeks, investors' interest shifted more toward taxable bond funds than equity funds. As per recent Investment Company Institute (ICI) and Lipper data, the fund category group attracted high inflows.

Taxable bond funds are debt securities whose interest income is taxable at state or federal levels. Even though funds from this category carry higher risks, they do provide better yields than government bond funds. Hence, investing in taxable bond funds might be a wise option for bond fund investors willing to take on relatively more risk in search of higher returns.

Taxable Bond Funds Garnered Significant Fund Inflows

According to Lipper, total inflows in all the major fund groups, including mutual funds were at $26.5 billion for the week ended May 16. This is the second-biggest inflow in funds, so far this year. In fact, one of the key contributors to the week's fund flows was taxable bond mutual funds, which witnessed estimated net inflows of $2.6 billion. The total rate of inflows in taxable bond funds is now $1.138 billion per week.

Additionally, equity funds witnessed outflows of $2.811 billion for the week ended May 16, with domestic equity funds having outflows of $3.834 billion. In bond funds, taxable bond funds had significant inflows of $2.718 billion during the same period.

Why Buy Taxable Bond Funds?

Taxable bonds are fixed-income securities issued by the country or state, income from which is not tax-exempt. These kinds of bonds are used to fund a particular project or facility. Taxable bond funds are likely to yield better results banking on continued job creation. So, mutual funds with strong exposure to various taxable bonds are considered prudent investment options in an environment of steadily rising GDP.

According to Morningstar, all the categories of taxable bond funds have generated encouraging one-year and year-to-date (YTD) returns. Bank-loan funds have returned 3.5% and 1.6% over the past-year and YTD time frames, respectively. Further, ultra-short bond funds managed one-year and YTD returns of 1.4% and 0.6%, respectively. Also, nontraditional bond funds have registered one-year and YTD returns of 2% and 0.02%, respectively.

Buy These 5 Taxable Bond Mutual Funds

This encouraging domestic backdrop calls for focus on five taxable bond mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) and Rank #2 (Buy), and have encouraging dividend yields. Moreover, these funds have impressive one-year and three-year returns, minimum initial investment within $5000 and low expense ratios.

We expect these funds to outperform their peers in the future. 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 also on the likely future success of the fund.

Loomis Sayles Securitized Asset LSSAX seeks high current income through capital preservation. LSSAX maintains a diversified portfolio by investing largely in securitized assets including mortgage-backed and other asset-backed securities. It invests in a wide range of asset-backed securities such as residential and commercial asset-backed securities.

LSSAX carries an expense ratio of 0.00% compared with the category average of 0.66%. Moreover, LSSAX requires a minimal initial investment of $0. The fund has one-year and three-year returns of 1.1% and 2.1%, respectively.

LSSAX has a Zacks Mutual Fund Rank #1. Further, Clifton V. Rowe is one of the fund managers of LSSAX since 2006. Annual dividend yield of the fund is 5.26%.

Payden Emerging Markets Bond Adviser PYEWX invests a bulk of its assets in debt securities, which are issued by governments and agencies located or headquartered in the emerging market nations. PYEWX seeks maximization of returns.

PYEWX carries an expense ratio of 1.00% compared with the category average of 1.16%. Moreover, PYEWX requires a minimal initial investment of $5,000. The fund has one-year and three-year returns of 2.8% and 4.9%, respectively.

PYEWX has a Zacks Mutual Fund Rank #2. Further, Kristin Ceva is one of the fund managers of PYEWX since 1998. Annual dividend yield of the fund is 5.14%.

Fidelity Series High Income  FSHNX invests a large chunk of its assets in income-generating debt securities, convertible securities, and preferred stocks. The fund may also invest in non-income generating securities like common stocks and defaulted securities.

FSHNX carries an expense ratio of 0.00% compared with the category average of 0.97%. Moreover, FSHNX requires a minimal initial investment of $0. The fund has one-year and three-year returns of 4.9% and 5.1%, respectively.

FSHNX has a Zacks Mutual Fund Rank #1. Further, Fred Hoff is the fund manager of FSHNX since 2011. Annual dividend yield of the fund is 5.46%.

Vanguard Short-Term Inflation-Protected Securities Index Investor VTIPX seeks to maintain the performance of its benchmark index, the Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) 0-5 Year Index.

VTIPX carries an expense ratio of 0.15% compared with the category average of 0.55%. Moreover, VTIPX requires a minimal initial investment of $3,000. The fund has one-year and three-year returns of 0.4% and 0.2%, respectively.

VTIPX has a Zacks Mutual Fund Rank #1. Further, Joshua C. Barrickman is the fund manager of VTIPX since 2012. Annual dividend yield of the fund is 1.40%.

USAA High Income USHYX aims to provide total returns through current income and capital growth. It focuses on investing in dollar-denominated, non-investment-grade debt securities. Along with domestic securities, USHYX may also invest without limit in dollar-denominated foreign securities.

USHYX carries an expense ratio of 0.85% compared with the category average of 0.97%. Moreover, USHYX requires a minimal initial investment of $3,000. The fund has one-year and three-year returns of 3.5% and 4.1%, respectively.

USHYX has a Zacks Mutual Fund Rank #2. Further, Julianne Bass is one of the fund managers of USHYX since 2007. Annual dividend yield of the fund is 5.54%.

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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 Nasdaq, Inc.



This article appears in: Investing , Mutual Funds
Referenced Symbols: USHYX , PYEWX , LSSAX , VTIPX , FSHNX


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