Top 5 High Yield Mutual Funds (June 2011)

High yield securities are the preferred option for investors who have a reasonable appetite for risk and who are willing to forgo equity growth for current income. This category of securities comprise of corporate bonds of low quality, convertible securities and preferred stock, all of which carry a significant amount of risk. Mutual funds are a prudent method to invest in this class of funds as they significantly reduce the risk involved by holding a well diversified portfolio. Such funds may also seek capital appreciation as a secondary objective.

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.

Putnam High Yield A (PHIGX) invests heavily in securities rated below investment grade with maturity periods of three years or more. The fund may also utilize futures, options, warrants and swaps to minimize risk or to enhance portfolio returns. This high yield mutual fund returned 13.01% over the last one year period.

The high yield mutual fund has a minimum initial investment of $500 and an expense ratio of 1.04% compared to a category average of 1.18%.

USAA High-Yield Opportunities (USHYX) seeks high current income with a secondary objective of capital appreciation. At least 80% of its assets are used to purchase high yield securities such as bonds, convertible securities and preferred stocks. The high yield mutual fund has a three year annualized return of 12.02%.

As of January 2011, this high yield mutual fund held 482 issues, with 6.88% of its total assets invested in iShares iBoxx $ High Yield Corporate Bd.

ING High Yield Bond A (IHYAX) invests the majority of its assets in high-yield bonds. The fund may invest a relatively smaller proportion of its assets in common and preferred stocks, government and money market securities. The high yield mutual fund has a five year annualized return of 6.34%.

Randall Parrish is the fund manager and he has managed this high yield mutual fund since 2007.

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 8.43%.

The high yield mutual fund has a minimum initial investment of $5,000 and an expense ratio of 1.10% compared to a category average of 1.18%.

MFS High Yield Opportunities A (MHOAX) invests heavily in debt securities which provide high income flows. The fund may purchase foreign securities, including those issued form emerging markets. This high yield mutual fund returned 14.02% over the last one year period.

David P. Cole is the fund manager and he has managed this high yield mutual fund since 2006.

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

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank at http://www.zacks.com/funds/mutualfund.

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