Top 5 High Yield Mutual Funds (April 2011)

For the average investor, high yield mutual funds are the best method to invest in bonds rated below investment grade, popularly known as junk bonds. This is because these funds hold a wide range of such securities, significantly reducing portfolio risk. In addition, these funds provide better returns than investments with higher ratings, including government and corporate bonds. Further, because the yield from such bonds is higher than investment grade securities, these investments are less susceptible to interest rate fluctuations.

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.

MassMutual Premier High Yield A (MPHAX) invests a large proportion of its assets fixed income securities with relatively lower ratings. He fund may also purchase convertible securities, preferred stocks and invest in warrants and bank borrowings. The high yield mutual fund has a five year annualized return of 6.22%.

The high yield mutual fund has an expense ratio of 1.15% compared to a category average of 1.18%.

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 7.89%.

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 19.57% over the last one year period.

The high yield mutual fund has a minimum initial investment of $1,000 and an expense ratio of 1.11% compared to a category average of 1.18%.

John Hancock2 High Yield 1 (JIHDX) seeks high total return. The fund 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. It may also invest in fixed and floating rate loans. The high yield mutual fund has a three year annualized return of 12.14%.

As of February 2011, this high yield mutual fund held 340 issues, with 2.11% of its total assets invested in Deutsche Bank Repo Repo.

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. The high-yield mutual fund returned 18.84% 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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