Top 10 high-yield bond funds

Top 10 high-yield bond funds

Looking for higher returns on investments? Consider buying high-yield bonds. These bonds pay higher interest rates due to low relative credit ratings. However, they also have a higher chance of default than investment-grade bonds, making them a risky product to add to an investment portfolio. If you’re ready to accept the risk, this article is for you. Here are the ten best high-yield bonds to consider putting your money in.

iShares Interest Rate Hedged High Yield Bond ETF (HYGH)
This high-yield bond monitors the BlackRock Interest Rate High Yield Bond Index. HYGH tracks an index that reduces interest rate risk in a portfolio that includes U.S. dollar-denominated higher-earning corporate bonds. The fund’s goal is to balance interest rate risk and adjust to alterations in credit spreads in the financial markets. The expense ratio of the bond is also as low as 0.15%.

VanEcK Emerging Markets High Yield Bond ETF (HYEM)
These high-yield bonds aim to replicate the performance of EMLH. This index comprises U.S. dollar-denominated bonds issued by non-sovereign emerging market issuers with a rating that’s below investment grade. The funds provide diversification as emerging markets may move differently than developed markets. The expense ratio of the bond stands at about 0.35%.

Fidelity High-Yield Factor ETF (FDHY)
This diligently managed exchange-traded fund utilizes a quantitative model to monitor over a thousand high-yield bonds and select those with higher return potential and the lowest chance of default. The selected bonds could be from corporations in our country or abroad. Interestingly, the ETF is among the first to utilize a factor-based approach for screening bonds to ascertain their quality. The expense ratio of the bond lies at about 0.45%.

Fidelity High Income (SPHIX)
If you’re aiming for a good yield, SPHIX is an excellent option for investment. The high-yield bonds have an expense ratio of about 0.72%, which is pretty reasonable. There’s no minimum investment cap on SPHIX, allowing you to invest as per your needs.

Vanguard High-Yield Corporate (VWEHX)
Want higher yields and don’t care much about the associated risks? Vanguard High-Yield Corporate is for you. The majority of the portfolio comprises bonds that are below the investment grade. However, the output of about 2.87% and an expense ratio of about 0.23% are a great trade-off.

California Long-Term Tax-Exempt (VCITX)
This is a state municipal bond fund. One of the best advantages of VCITX is that the income earned from the fund is tax-free at the federal level and even state level, subject to certain conditions. While it’s true that municipal bonds don’t always offer the best yields, they can prove to be profitable in places where taxes are high.

Vanguard Long-Term Corporate Bond Index (VLTCX)
For investors that want low-cost index funds with high yields, VLTCX proves best. However, the fund is available exclusively in Vanguard’s Admiral shares, requiring an initial $3,000 investment. The bond provides an expense ratio of 0.07%.

T. Rowe Price Corporate Income (PRPIX)
If you’re looking for a top-class bond that provides high returns while having a low credit risk, consider PRPIX. It’s also an intermediate-term bond fund. This means it doesn’t hold the risk that long-term funds experience.

Vanguard High-Yield Tax-Exempt (VWAHX)
VWAHX is yet another bond that gives a high yield at a low cost and with less tax burden. The portfolio comprises more than 2,000 municipal bonds classed as tax-free at the federal level.

Fidelity Capital & Income (FAGIX)
The bond is unique among high-yield bonds as it designates a portion of its assets to dividend-based stocks. The exposure of the equity market increases the risk, but it also tends to perform better with time.

No doubt, high-yield bonds are risky. One way to reduce the risk and earn some benefit is to diversify your portfolio by investing in multiple high-yield bonds in exchange-traded funds. Also, the options you need to pick may largely depend on factors such as your investment goal and financial circumstances.