3 Top-Ranked High-Yield Bond Funds to Buy for Risk Reduction

High-yield bonds behave more like stocks than investment-grade bonds. These bonds have significant holdings in smaller companies, which are considered to have a weaker financial condition but benefit as the economy moves north.

Although high-yield bonds are more exposed to credit risk, these have less exposure to interest rate risk, making them a differentiated source of return. Despite the headwinds faced during the Fed’s tightening of monetary policy, with indications coming in from the Fed that it might slow down its steep rate of hikes, these bonds are poised to grow.

Below, we share with you three top-ranked high-yield bond mutual funds, namely T. Rowe Price Floating Rate Fund PAFRXManning & Napier High Yield Bond Series MNHYX and Fidelity Capital & Income FAGIX. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of funds.

T. Rowe Price Floating Rate Fund invests its assets along with borrowing, if any, in floating rate loans and floating rate debt securities, wherein floating rate loans represent amounts borrowed by companies or other entities from banks and other lenders. PAFRX advisors invest mostly in funds that are below investment grade or junk or unrated securities.

T. Rowe Price Floating Rate Fund has three-year annualized returns of 5%. As of the end of November 2023, PAFRX held 50% of its net assets in miscellaneous bonds.

Manning & Napier High Yield Bond Series fund invests most of its net assets in below investment grade and other financial instruments like derivative instruments, exchange-traded funds (ETFs), and bank loans, which have similar economic characteristics. MNHYX advisors may also consider investing in U.S. dollar-denominated fixed-income securities issued by U.S. and foreign corporations and governments, including those in emerging markets.

Manning & Napier High Yield Bond Series fund has three-year annualized returns of 4.3%. MNHYX has an expense ratio of 0.90%.

Fidelity Capital & Income Fund invests its net assets in domestic and foreign equity and debt securities, which include lower-quality debt securities, defaulted securities and also in companies in troubled or uncertain financial conditions. FAGIX advisors choose to invest based on the fundamental analysis of each issuer's financial condition, industry position and market as well as economic conditions.

Fidelity Capital & Income Fundhas three-year annualized returns of 3.8%. Mark Notkin has been one of the fund managers of FAGIX since July 2003.

To view the Zacks Rank and the past performance of all high-yield bond funds, investors can click here to see the complete list of high-yield bond funds.

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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.

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