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Fixed Income: High Yields Are Top-Performing Mutual Funds in 2010

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Fixed-income funds are headed for 2010 returns of between 1.8% and 7.4% on average, according to preliminary Lipper data through Dec. 23, lagging equity funds' expected 16% average returns for the full year.

Tax-exempt municipals are among the weakest-performing fund categories. They have dropped -1.87% in December and -4.25% for the quarter. For the year through Dec. 23, though, the group – which includes 1,822 funds — is up 1.76%.

Some funds have managed to produce some decent returns. The YieldQuest Tax-Exempt Bond Fund (YTEIX), for instance, has moved up 6.24% in December and 9.78% for the fourth quarter through Dec. 23.

Year to date, the Pioneer High Income Municipal Fund (HICMX) has moved up 6.87%, while the Ivy Muni High Income (IYIAC) has advanced 6.81%.

Taxable Funds

The 3,650-plus funds in this category are up 7.41% through Dec. 23, Lipper says. For the past month and fourth quarter, they have declined about -0.55%.

U.S. government debt and Treasuries dropped about 1% recently but are poised to end the year with returns of about 4.1%. They had returns of 3.7% in the third quarter of 2010, according to Lipper analyst Jeff Tjornehoj.

Short- and intermediate investment grade funds have gained roughly 5.9% in 2010 so far, despite recent weakness.

Funds in the general-domestic taxable group (about 1,670 funds) are sitting on gains of some 9.5% this year, while world-income funds (480 in number) have average gains of more than 6.9% so far in 2010.

High Yield, Income

The high-yield fund category, with 519 funds, rose a whopping 46.41% in 2009. This year, it’s up 13.64% and is the highest-performing taxable fixed-income fund group.

For instance, the John Hancock High Yield Fund (JHHBX) has moved up 23.66% in 2010 through Dec. 23, with a jump of 8.20% in the fourth quarter, Lipper says.

John Hancock Funds II High Income (JHAQX) is doing quite well, too. It’s moved up 8.07% so far this quarter and 25.66% in 2010.

The Fidelity Real Estate High Income Fund (FRIFX) is ahead 25.00% in 2010.