High yield bonds behave more like stocks than investment grade bonds. These bonds hold large stakes in smaller companies, which are considered to be in a weaker financial position, but which benefit from the progress of the economy towards the north. Although high yield bonds are more exposed to credit risk, they are less exposed to interest rate risk, making them a differentiated source of return. Despite the headwinds encountered in the early months of the pandemic, demand for high yield has recovered since the Fed cut rates and the economy reopened. Improving economic activity has renewed the search for yield and, given the current scenario, these bonds are poised to grow.
Below, we share with you three top-ranked high-yield bond mutual funds, namely Manning & Napier High Yield Bond Series MNHYX, Fidelity Advisor Floating Rate High Income Fund Class A FFRAX and Fidelity Capital & Income Fund FAGIX. Everyone won a Zacks Mutual Fund Ranking #1 (Strong Buy) and is expected to outperform its peers going forward. Investors can click here to see the full list of funds.
Manning & Napier High Yield Bond Series invests the majority of its assets in bonds rated below investment grade and other financial instruments, primarily derivatives and ETFs, with economic characteristics similar to those of lower-grade securities. MNHYX may invest part of its assets in bank loans. The fund has returned 6.8% over the past three years.
As of December 2021, MNHYX had 15.8% of its assets invested in Total Misc Bonds.
Fidelity Advisor Floating Rate High Income Fund Class A seeks a high level of current income by investing the majority of its assets in loans and floating rate securities. FFRAX invests in companies that are in difficult or uncertain financial condition, using fundamental analysis of each issuer’s financial condition and industry position, as well as market and economic conditions. The fund has returned 3.8% over the past three years.
Eric Mollenhauer has been one of FFRAX’s fund managers since 2013.
Fidelity Capital & Income Fund invests in equities and debt securities, including defaulted securities, with an emphasis on lower quality debt securities. FAGIX invests in companies whose financial situation is difficult or uncertain using fundamental analysis. The fund has returned 8.5% over the past three years.
FAGIX has an expense ratio of 0.68% against a category average of 0.95%.
To view the Zacks ranking and past performance of all high yield bond funds, investors can click here to see the full list of high yield bond funds.
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