5 High-Yield Mutual Funds With a Human Touch

Seasoned management can make a difference in junk bonds. We put a spotlight on five actively run high-yield mutual funds.

A smiling fund manager sits in front of multiple computers showing investment information
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Junk bonds sure aren't being treated like junk this year.

High-yield mutual funds have become a popular draw for portfolios in 2021. Todd Rosenbluth, Head of ETF & Mutual Fund Research at independent research firm CFRA, says high-yield bonds gathered nearly twice as much new money during the first half of 2021 as in all of 2020.

"Investors were more comfortable taking on credit risk as the U.S. economy recovered," Rosenbluth says.

Just like you and I, corporations are measured on their ability to repay their debts. Companies with ratings that fall below what's considered investment-grade are typically referred to as high yield, or junk. And when the economy gets dicey, investors often pull away from junk bonds because of the higher risk these companies might default on the debt. Indeed, this dynamic played out during the worst of the pandemic.

Conversely, any traction in the fight against COVID (like the recent FDA approval of the Pfizer-BioNTech vaccine) is likely to improve the chances of that debt getting repaid, which is a clear boon for high-yield bonds. At the same time, the Federal Reserve has continued to signal that it plans on leaving its benchmark rate near zero for at least the next year or so. That's keeping a lid on the yield of better-rated bonds, making high-yield mutual funds holding junk debt look all that much more attractive.

We aren't out of the woods yet, however, and there's plenty of economic risk still floating around. Thus, investors interested in junk debt might want to consider actively managed products. Bond indexes are often constructed using the amount of debt issued to determine their weightings (similar to how stock indexes often weight holdings by stocks' market value). But that can backfire when it comes to riskier segments of the market, such as junk bonds.

Here, then, are five high-yield mutual funds with a human touch. Each of these actively managed funds boasts considerably higher yields than what you can get out of investment-grade corporate bonds. All of these picks are also "no-load" products, meaning there are no upfront sales fees – just the annual expenses that funds typically charge.


Data is as of Aug. 26. SEC yields reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds.

Contributing Writer, Kiplinger.com