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For an average investor, high-yield bond mutual funds are the best 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, which reduces the risk of the portfolio. 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, they are less susceptible to interest rate fluctuations.
Below, we share with you three top-ranked high-yield bond mutual funds, namely Fidelity Advisor Floating Rate High Income FFRAX, Credit Suisse Floating Rate High Income CHICX and Buffalo High Yield Fund BUFHX. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of funds.
Fidelity Advisor Floating Rate High Income fund invests most of its net assets in issues of domestic and foreign lower-quality debt securities, floating-rate securities, money-market instruments, investment-grade debt securities and repurchase agreements. FFRAX advisors use fundamental analysis factors such as the issuer's financial condition, industry position, and market and economic conditions for investment decisions.
Fidelity Advisor Floating Rate High Income fund has three-year annualized returns of 5.6%. As of the end of January 2024, FFRAX held 63.2% of its net assets in miscellaneous bonds.
Credit Suisse Floating Rate High Income fund invests most of its net assets in floating-rate securities, loans and other investments in companies that provide investment exposure to such floating-rate securities. CHICX chooses to invest in floating-rate, senior-secured loans and below-investment-grade securities issued in U.S. dollars by U.S. and foreign issuers.
Credit Suisse Floating Rate High Income fund has three-year annualized returns of 4.6%.CHICX has an expense ratio of 1.7%.
Buffalo High Yield Fund invests most of its assets in higher-yielding, higher-risk debt securities rated below investment grade by the major rating agencies preferably with intermediate-term maturities. BUFHX advisors also invest a small portion of their net assets in investment-grade debt securities, U.S. Treasury Securities, money market funds and equity investments, including dividend-paying stocks, convertible stocks and preferred stocks.
Buffalo High Yield Fund has three-year annualized returns of 3.7%. Jeffrey K. Deardorff has been the fund manager of BUFHX since January 2015.