Top 5 High Yield Mutual Funds (Jan. 2011)

Investors willing to undertake a reasonable amount of risk in pursuit of high income levels would do well to consider high yield bonds. This category generally represents corporate bonds with low ratings, often below investment grade. 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.

Below we will share with you 5 top rated high yield mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future.

Thrivent High Yield A (LBHYX) invests a large proportion of its assets in high yield bonds, other types of income generating debt securities as well as dividend-paying preferred stock. The securities purchased by the fund must be rated “Non-investment grade speculative” by a major ratings firm. The high yield mutual fund has a five year annualized return of 7.7%.

The high yield mutual fund has a minimum initial investment of $1,000 and an expense ratio of 0.93% compared to a category average of 1.20%.

Transamerica Partners High Yield Bond (DVHYX) seeks high current income. The fund uses an underlying fund with similar goals to invest in securities. The majority of its assets are used to purchase junk bonds and related securities. The high yield mutual fund has a ten year annualized return of 8.38%.

Michael Weilheimer is the fund manager and she has managed this high yield mutual fund since 2000.

Delaware High-Yield Opportunities A (DHOAX) invests the majority of its assets in corporate bonds rated below investment-grade by renowned ratings firms such as Standard & Poors. The fund may also purchase unrated securities of similar quality. This high yield mutual fund returned 17.21% over the last one year period.

As of September 2010, this high yield mutual fund held 237 issues, with 3.89% of its total assets invested in FHLB.

John Hancock2 High Yield 1 (JIHDX) seeks high total return. It invests the majority of its assets in corporate bonds, preferred stocks, government and asset backed securities. It may purchase foreign bonds as well as fixed-income securities denominated in foreign currencies. The high yield mutual fund has a three year annualized return of 8.14%.

The high yield mutual fund has an expense ratio of 0.75% compared to a category average of 1.20%.

Rydex High Yield Strategy A (RYHDX) invests in high yield debt securities. The fund may also invest in securities which as a whole mimic the performance of the U.S and Canadian high yield bond markets. These securities must have economic features similar to these markets. The high-yield mutual fund returned 18.44% over the last one year period.

Michael P. Byrum is the fund manager and he has managed this high yield mutual fund since 2007.

To view the Zacks Rank and past performance of all high yield mutual funds, then click here.

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