The crisis in Europe and the fact that Bill Gross is underperforming (that’s underperforming) 92% of his peers means it’s a brave new world in the fixed income space. Questions of a bond bubble, which dominated headlines until recently, can definitively be put to rest.
But for investors willing to take on a “reasonable” amount of risk to offset income shortfalls would do well to look at high-yield bonds, according to Zacks Investor Research.
“This category generally represents corporate bonds with low ratings, often below investment grade,” Zacks writes. “A significant amount of risk is therefore associated with these investments and mutual funds are the best option to invest in these instruments. By investing in a well diversified portfolio of such securities they successfully lower the associated risk for the investor.”
Here are the five highest yield bond funds according to the research firm, which “earned a Zacks’ No 1. Rank (strong buy) as [it] expects these mutual funds to outperform their peers in the future.”
Federated High-Income Bond A (NASDAQ:FHIIX) seeks current income.
“The fund invests heavily in a wide range of high-yield corporate bonds with lower ratings,” Zacks writes. “The fund may also utilize synthetic instruments such as derivatives to fulfill its investment objectives. This high-yield mutual fund returned 5.44% over the last one year period.”
Mark Durbiano has managed this high-yield mutual fund since 1987.
Rydex High-Yield Strategy A (NASDAQ:RYHDX) invests in high-yield debt securities.
Zacks says the fund “may also invest in securities which as a whole mimic the performance of the U.S and Canadian high-yield bond markets. The high-yield mutual fund has a three-year annualized return of 11.42%.”