Are you struggling to find the best high-yield bond funds that can generate excellent yields? Don’t worry, this post lists the top US high-yield bond funds that can improve your portfolio and lift your financials.
The past year has been great for high-yield bond funds, with several funds posting double-digit gains. Funds from Fidelity Investments, BlackRock, and Brandy Wine Global have traded heavily and taken the lead of the pack. In 2023, the funds returned 12.1% on average, more than doubling the overall bond market’s 5.3% gain.
Moreover, they have dramatically outpaced the Core Bond Index, 1.9 percentage points per year for three years and 3.8 percentage points per year for five years.
Top High Yield Bond Funds Performance
Here are the top-performing high-yield bond funds:
Why Invest In High Yield Bond Funds?
Investing in high-yield bond funds can provide higher income than traditional bonds. This bond category typically involves company issuers with lower credit quality, which presents an opportunity for income-seeking investors in a low-interest-rate environment.
High-yield bonds and funds also provide diversification versus traditional bonds and stocks, which can help improve overall portfolio performance over time. This strategy works especially well in rising rate environments because the economy is expanding, and corporate earnings and related creditworthiness are strengthening.
Best High Yield Bond Funds
1. American High-Income Trust
American Funds American High-Income Trust AHTFX invests for high income and delivers through a non-structured portfolio of lower-rated bonds. This American Funds-managed fund strives for an appropriate balance between income and capital appreciation.
- Fund Assets: $20.06B
- Expense Ratio: 0.73%
- Dividend Yield: 6.43%
2. Fidelity Floating Rate High-Income
Fidelity Floating Rate High Income FFRHX invests primarily in floating rate loans and other floating rate securities which help protect against interest rate risk. This fund delivers income with lower interest rate sensitivity.
- Fund Assets: $14.05B
- Expense Ratio: 0.73%
- Dividend Yield: 8.44%
3. Fidelity Capital & Income Fund
Fidelity Capital & Income Fund FAGIX orients investment holdings toward high-yield bonds, leveraged loans, and stocks, in seeking high current income and capital appreciation. This Fidelity-managed fund takes a flexible approach to fixed-income investing.
Ticker: FAGIX
- Fund Assets: $12.83B
- Expense Ratio: 0.72%
- Dividend Yield: 5.19%
4. American Funds Emerging Markets Bond Fund
American Funds Emerging Markets Bond Fund EBNEX invests in bonds issued by countries in emerging markets which seek high current income and potential capital appreciation. This fund offers exposure to the growth potential of emerging markets, though it can be more volatile.
Ticker: EBNEX
- Fund Assets: $16.75M
- Expense Ratio: 0.94%
- Dividend Yield: 6.71%
5. T. Rowe Price Credit Opportunities
T. Rowe Price Credit Opportunities PRCPX invests in a diversified portfolio of high-yield corporate bonds, bank loans, and other credit instruments in seeking high income and capital appreciation. This T. Rowe Price-managed fund emphasizes credit opportunities across a broad range of sectors.
Ticker: PRCPX
- Fund Assets: $185.55M
- Expense Ratio: 0.81%
- Dividend Yield: 7.08%
6. American High-Income Trust
American Funds American High-Income Trust Class A (a different fee structure than Class F-1) invests in the same underlying securities to provide high current income, with capital appreciation as a secondary objective.
Ticker: AHITX
- Fund Assets: $20.06B
- Expense Ratio: 0.72%
- Dividend Yield: 6.44%
7. BlackRock High Yield Bond
BlackRock High Yield Bond invests primarily in high-yield corporate bonds in seeking high current income with a focus on credit analysis and risk management. This BlackRock-managed fund takes a disciplined, diversified approach to income investing.
Ticker: BRHYX
- Fund Assets: $22.21B
- Expense Ratio: 0.48%
- Dividend Yield: 7.07%
8. iShares iBoxx $ High Yield Corporate Bond ETF
iShares iBoxx $ High Yield Corporate Bond ETF is based on the performance of the iBoxx USD Liquid High Yield Index. This ETF offers exposure to a broad range of U.S. high-yield corporate bonds. It provides liquidity for individual portfolio holdings and diversification benefits.
Ticker: HYG
- Fund Assets: $17.83B
- Expense Ratio: 0.49%
- Dividend Yield: 5.96%
9. Vanguard High-Yield Corporate Fund
Vanguard High-Yield Corporate Fund (VWEHX) seeks high current income by investing in a diversified portfolio of high-yield, higher-risk corporate bonds. Vanguard managers emphasize credit research and risk control in seeking income objectives.
Ticker: VWEHX
- Fund Assets: $2.95B
- Expense Ratio: 0.22%
- Dividend Yield: 5.99%
Future Outlook For High Yield Bonds
Morningstar is looking for a good year for high-yield bonds with yields dropping to 2.75% by 2025. That’s good for investors as high rates and price appreciation on longer-duration bonds will mean big gains.
So high-yield bonds are set up for the next few years to offer yields and capital gains.
What Are Best Strategies For Investing In High Yield Bond Funds?
- Passive (Buy and Hold): Buy individual bonds and hold to maturity, focusing on steady income from high quality, non-callable bonds, low transaction costs and stability in market turmoil.
- Index Matching (Quasi-Passive): Match a bond index with a diversified portfolio to balance income and moderate flexibility.
- Immunization (Quasi-Active): Match the bond duration to the investor’s time horizon to minimize interest rate risk, balance predictability and risk management.
- Dedicated and Active: Actively manage the portfolio by selecting bonds based on market conditions and economic outlook, potentially higher returns but requires interest rate vigilance.
Bottom Line
For income and diversification in your fixed-income portfolio, high-yield bond funds are a great investment. With many top fund companies like Fidelity, BlackRock, and American Funds having had such strong performance recently 2024 should be another good year for those looking for high yields
Read More - Best Performing International Bond Funds of the 2024
Note: The information provided was selected by an experienced financial analyst, but it may or may not be suitable for your portfolio. Before making any purchases, conduct your own research and then make a decision