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, Fidelity Series Floating Rate High Income FFHCX and American Funds American High-Income AHIFX. 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 6.2% over the past three years.
As of September 2024, MNHYX had 19.4% of its assets invested in Total Misc Bonds.
Fidelity Series Floating Rate High Income invests mainly in floating rate loans, which are often lower-quality debt securities and other floating rate securities. FFHCX invests part of its assets in the money market, investment-grade debt securities and repurchase agreements. The fund has returned 7.8% over the past three years.
Chandler Perine has been one of the fund managers of FFHCX since September 2022.
American Funds American High-Income invests primarily in higher-yielding and lower-quality debt securities. AHIFX also invests part of its assets in securities of issuers domiciled outside the United States. The fund has returned 5.5% over the past three years.
AHIFX has an expense ratio of 0.43%.
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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This article originally published on Zacks Investment Research (zacks.com).
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