“Buy one that’s run by a seasoned manager who is skilled at picking good credit.” Vanguard High Yield Corporate, a member of the Kip 25, has long won our favor. Manager Michael Hong keeps risk at bay by focusing on debt rated double-B, the highest-quality junk-bond rating. The SPDR Barclays High Yield Bond ETF (JNK) is another popular broad high yield bond fund. The ETF seeks to track the Barclays Capital High Yield Very Liquid Index.

• The Vanguard name is synonymous with low fees, which means that more of your investment goes into the bonds, not into the fund managers’ pockets.
• This is true even if you only move money between mutual funds without taking any out as cash.
• The fund’s active management approach allows it to adapt to changing market conditions, making it suitable for those looking for a more dynamic investment strategy in the high-yield space.
• You may lose some or even all of the money you invest in a mutual fund.
• Some investors are not really fond of zero coupon bonds because unlike other fixed income securities, a zero coupon bond doesn’t provide income payments at intervals.

It’s rather like the time to maturity, but it does a better job than maturity in measuring the impact of interest rate jumps. The price of a bond with a duration of ten years will go down 10%, more or less, on a one-percentage-point rise in rates. You also might be able to access BSIIX via your 401(k) or other employer-sponsored retirement plan.

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Some investors are not really fond of zero coupon bonds because unlike other fixed income securities, a zero coupon bond doesn’t provide income payments at intervals. If the bond’s value falls below par, investors are more likely to purchase it since they will be repaid the par value at maturity. To calculate the bond discount, the present value of the coupon payments and principal value must be determined. Also, as rates rise, investors demand a higher yield from the bonds they consider buying. If they expect rates to continue to rise in the future they don’t want a fixed-rate bond at current yields.

iShares 20+ Year Treasury Bond ETF (TLT)

The fund managers invest in what they consider to be higher-rated junk bonds. Kiplinger expects 1.2% inflation for 2020, below the 2.3% rate recorded in 2019. But the Fed’s easy-money policies mean high inflation is a great “likelihood” in the future, says Sam Lau, a strategic commodity portfolio manager with DoubleLine.

Why would you buy a bond at a discount?

The SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL, $91.54) is a liquid way to get access to the short end of the yield curve. It invests in an extremely tight portfolio of just 14 bond issues with thin maturities of between one and three months – good for the truly risk-averse. “Fixed-income investments can add ballast to your portfolio, especially during wild market swings,” he says.

Some of those nations, like China, are large but categorized as emerging markets by some other index authorities. Profit and prosper with the best of Kiplinger’s advice on investing, taxes, retirement, personal finance and much more. They need to be taken down a peg in your mental arithmetic of expected returns. The vehicle was awarded an FE fundinfo Crown Rating of five and, with an ongoing charges figure (OCF) of 0.48%, is one of the cheaper funds in its sector.

Best Mutual Funds Of 2025

Almost all of the rest of BLV’s assets are used to hold investment-grade international sovereign debt. It’s another index fund, this time investing in bonds with maturities between five and 10 years. Roughly half the fund is invested in Treasuries and other U.S. government bonds, with another 46% in investment-grade corporates, and most of the rest in foreign sovereigns. “Buying longer-term bonds at these prices exposes you to interest-rate risk. If yields bounce off of these historic lows, bond prices will fall,” he says. “Given that yields are modest across the bond universe, it makes sense to focus on safety rather than reach for a slightly higher yield that won’t really move the needle that much anyway.”

• The fund’s bonds are generally exempt from federal income taxes, which results in a lower yield of 4.26% compared to taxable funds.
• For instance, from the start of 2020 through the March 23 market low, the S&P 500 lost more than 30% on a total-return basis.
• TEAF’s quirkiness has contributed to it perpetually trading at a deep discount to NAV.
• Since then, the S&P 500 is up 46.5%, while BIL has lost just 4 basis points.

iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

That performance number says nothing about what you can expect from this portfolio. The best estimate of future returns is the yield on those long Treasury bonds, now only 1.4%. “If interest rates do rise, a long-term bond fund would underperform.” AGG is an index fund that tracks the Bloomberg Barclays U.S. Aggregate Bond Index, the top 5 high yield bond funds for 2020 or the “Agg,” which is the standard benchmark for most bond funds. Shares of mutual funds trade on stock exchanges like stocks, but they operate a little differently.

The problem, of course, is that cheap CEFs can stay cheap forever in the absence of a catalyst to close the discount to NAV. The potential returns here look good, which is why JQC is one of the best closed-end funds to buy. The 30% in second-lien loans are riskier, of course, as the owner of a second lien generally gets whatever is left over after the senior creditors have been paid. But, again, this is only 30% of the portfolio, and the fund is well diversified. The fund manages this risk by holding a first-lien position in 70% of the portfolio.

The Different Types of Mutual Funds

“Investors leverage bonds because they are more predictable than equity investments, albeit a bit more boring, which turns off some investors.” Fidelity’s Ian Fishwick invests 33% in BBB-rated bonds (the lowest of the investment grade spectrum) while Schroder’s Daniel Pearson and Julien Houdain have a 64.1% allocation to these bonds. The duo aims to profit from anomalies in the market by investing in the full range of credit options (including unrated bonds) when valuations are considered attractive, with no benchmark constraints. The vast majority of the portfolio, at roughly 87%, is invested in common stocks.

The 10 largest names only encompass about 15% of the portfolio. Earnings in the next three to five years are expected to outpace its Morningstar category’s average. FSPSX’s dividend yield rewards investors with cash flow and also tops its category average. If you’re not sure if high-yield bond funds make sense for your portfolio, consider checking with a financial advisor who can help you assess your overall financial strategy.

But the fund also has exposure to preferred stock and bonds as well as a few smaller positions in other assets. The fund accepts a fair amount of credit risk, however, as it owns a portfolio of senior-secured and second-lien loans made to companies that are mostly below investment grade. CEFs have initial public offerings (IPOs) like stocks, and there is a fixed number of shares that then trade on the stock market. If you want to buy shares, you buy them the same way you’d buy a stock. The very first closed-end fund was launched in 1893 – more than 30 years before the first traditional mutual funds (like those you might find in your 401(k) plan) were created. It says both the stock and bond markets are at risk of going down more as the full risk of the Fed tightening is not grasped by investors.