High-yield bonds are debt securities issued by corporations that can provide a higher yield than investment-grade bonds but are riskier investments. These corporate bonds represent debt issued by a firm with the promise to pay interest and return the principal on maturity. Junk bonds are issued by companies with poorer credit quality.
They carry lower credit ratings from the leading credit agencies, usually Ba1 or lower by Moody's, or BB+ or lower by Standard & Poor's or Fitch. These bonds have significant holdings in smaller companies, which are considered to have a weaker financial condition but benefit as the economy moves north. Though high-yield bonds are more exposed to credit risk, these have less exposure to interest rate risk, making them a differentiated source of return.
Below, we share with you three top-ranked high-yield bond mutual funds — Manning & Napier High Yield Bond MNHYX, BlackRock High Yield Investor BHYAX 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.
Manning & Napier High Yield Bond invests the majority of its net assets in investment-grade bonds, derivative instruments and exchange-traded funds. MNHYX also invests a portion of its net assets in bank loans, which are, generally, non-investment grade floating rate investments. The fund has returned 4.7% over the past three years.
As of June 2024, MNHYX had 19.7% of its assets invested in Total Misc Bonds.
BlackRock High Yield Investor seeks to maximize total return alongside income generation and prudent investment management. BHYAX invests most of its assets in non-dollar denominated bonds of foreign issuers. Its investment in non-dollar denominated bonds may be on a currency hedged or unhedged basis. The fund has returned 3% over the past three years.
Mitchell S. Garfin has been one of the fund managers of BHYAX since December 2009.
Fidelity Capital & Income invests in equity and debt securities with an emphasis on lower-quality debt securities and defaulted securities. FAGIX invests in companies in troubled or uncertain financial conditions using fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to decide its investments. The fund has returned 3.8% over the past three years.
FAGIX has an expense ratio of 0.65%.
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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