High-yield bonds can be a big help for clients looking to diversify their portfolios. These speculative-grade, or "junk bond," investments behave more like equities. Yet as fixed-income they enjoy a higher spot on an issuer's capital structure and, consequently, a level of safety that stocks don't offer.
Of course, many advisors are concerned that investors consider them as safe as other fixed-income securities while they can be far more volatile than Treasuries and in fact, incur substantial losses.
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Warning: Bond Funds That Act Like Stocks
High-yield defies broad description because it covers a wide range of industries and various levels of risk (BB is quite different than CCC). But as a market, high-yield returned about 2.4% overall in 2014, according to the BofA Merrill Lynch U.S. High Yield Master II Index. That's lower than its historical norm of about 5%.
In an illustration of just how risky this market can be, returns fell and then climbed so drastically in December that investors could have made almost all of that annual profit (2.1%) in just the last two weeks of the year. Moreover, this move came in the midst of headline-grabbing cash outflows. The six-month bleed was partly attributable to worries over the drop in oil prices, since energy companies make up a sizable portion of this market. Investors reportedly pulled $523 million out of the market in just one week (ending Jan. 21) this month.
For clients who are willing to take on a bit more risk, here we present the 10 largest high-yield funds, along with performance metrics for each.
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Data is from Morningstar as of Jan 26.
10. MainStay High Yield Corporate Bond Fund (MHCAX)
Total Net Assets 12/31/14: $8.23B
Total Net Assets 12/31/13: $8.82B
1Y: 0.65%
3Y: 6.27%
5Y: 7.39%
9. Ivy High Income Fund (WHIAX)
Total Net Assets 12/31/14: $8.32B
Total Net Assets 12/31/13: $10.31B
1Y: 0.12%
3Y: 8.44%
5Y: 9.43%
8. Lord Abbett Bond Debenture Fund (LBNDX)
Total Net Assets 12/31/14: $9.08B
Total Net Assets 12/31/13: $8.54B
1Y: 4.40%
3Y: 7.95%
5Y: 8.42%
7. T. Rowe Price High Yield Fund (PRFHX)
Total Net Assets 12/31/14: $9.43B
Total Net Assets 12/31/13: $9.87B
1Y: 13.55%
3Y: 7.52%
5Y: 7.60%
6. JPMorgan High Yield Fund (OHYAX)
Total Net Assets 12/31/14: $9.86B
Total Net Assets 12/31/13: $10.79B
1Y: 1.89%
3Y: 7.23%
5Y: 7.76%
5. PIMCO High Yield (PHIYX)
Total Net Assets 12/31/14: $10.36B
Total Net Assets 12/31/13: $15.64B
1Y: 3.12%
3Y: 7.25%
5Y: 7.97%
4. Fidelity® Capital and Income Fund (FAGIX)
Total Net Assets 12/31/14: $10.39B
Total Net Assets 12/31/13: $10.83B
1Y: 5.86%
3Y: 9.80%
5Y: 9.19%
3. BlackRock High Yield Bond Portfolio (BHYAX)
Total Net Assets 12/31/14: $14.84B
Total Net Assets 12/31/13: $13.08B
1Y: 1.86%
3Y: 8.46%
5Y: 9.21%
2. Vanguard High Yield Corporate Fund (VWEHX)
Total Net Assets 12/31/14: $16.85B
Total Net Assets 12/31/13: $16.21B
1Y: 3.91%
3Y: 7.22%
5Y: 8.35%
1. American Funds American Hi-Inc Tr A (AHITX)
Total Net Assets 12/31/14: $19.08B
Total Net Assets 12/31/13: $20.38B
1Y: -0.65%
3Y: 6.07%
5Y: 7.21%
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