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Value Line’s Corporate High-Yield objective group is made up of mutual funds that invest in lower-rated corporate bonds in pursuit of high current income. These bonds are often referred to as “junk,” though that name’s implications are, overall, more negative than this segment of the market deserves. Below-investment-grade is another term often associated with these types of bonds. Typical names in this objective group include high-yield or high-income, though some use below-investment-grade. Many funds here have a secondary objective of capital appreciation.

The term high yield is derived from the fact that investors tend to demand a higher yield as the credit quality of a debt issuer moves lower. There are several bond rating agencies that are often referenced to determine the credit quality of a bond and, therefore, if a bond is appropriate for inclusion in a high-yield fund. Each agency has its own methods for rating and scoring the quality of a bond, though each has a clear demarcation between debt issued by a high-quality borrower and a lower-quality borrower. Funds will usually spell out in their prospectuses which agency or agencies are used to assess credit quality and the ratings in which the portfolio is focused. That said, funds here are also allowed to invest in bonds that are not rated by any agency, assuming that the fund manager’s analysis suggests that the bond is worth owning. Some funds may hold bonds that are at the lower rungs of investment-quality debt. 

High-yield bond funds are in their own objective group because they often trade differently than do higher-quality corporate bonds. Indeed, factors specific to the issuing company of a high-yield bond are likely to have a larger impact on a high-yield bond’s price than interest rate changes and duration, which is not true of most bonds. This often results in high-yield bonds performing more like stocks than high-quality corporate or government debt securities. The nature of high-yield bonds lends to a broad mandate for managers and a great deal of similarity in style across most funds in this group. Thus, the vast majority of funds here have eclectic portfolios that can’t be easily lumped together. 

Over the long term, the Corporate High-Yield objective group has been a below-average performer relative to the broader bond market, as measured by the Barclays High Yield Bond index.  For the 10-year period ended May 31, 2013, the group had an annualized return of 6.0%, while the Barclay’s High-Yield index reported an annualized return of 9.9%.  Over the trailing five- and three-year periods, the group had gains of 6.4% and 9.2%, respectively, while the Barclay’s High-Yield index reported gains of 12.4% and 12.2%, respectively. In the trailing 12 months ended May 31, 2013, the Corporate High-Yield group reported a return of 11.9%, compared with a better return of 14.8% for the Barclays High-Yield index. The Corporate High-Yield objective group has a higher-than-average Risk Rank of 4, indicating that this group might appeal to investors with greater risk tolerance. That said, investors with a longer time horizon might invest in high-yield bonds as part of a diversified portfolio. 

Fund Name: J Hancock High Yield Fund A
Ticker: JHHBX
Investment Advisor: John Hancock Advisers, LLC
Year-to-Date Return: 6.26%
Benchmark: Bank of America Merrill Lynch High Yield Master II Index
Objective: The Fund seeks high current income with capital appreciation as a secondary goal.
Investment Strategy:
• Invest at least 80% of its net assets in US and foreign fixed-income securities rated BB/Ba or lower and their unrated equivalents.
• May include domestic and foreign corporate bonds, debentures and notes, convertible securities, preferred securities and domestic and foreign government obligations.
• May hold up to 20% of its total assets in the securities of companies in any one industry and up to 10% of its total assets in the securities of any individual issuer.
• May use certain higher-risk investments, including restricted or illiquid securities and derivatives.
• May invest up to 20% of its assets in US and foreign common stocks of companies of any size.

Fund Name: Western Asset High Yield Fund A
Ticker: WAYAX
Investment Advisor: Legg Mason Partners Fund Advisor, LLC
Year-to-Date Return: 5.95%
Benchmark: Barclays US High Yield – 2% Issuer Cap Index
Objective: The Fund seeks to maximize total return, consistent with prudent investment management.
Investment Strategy:
• Invest at least 80% of its net assets in US dollar denominated debt of fixed income securities.
• May invest up to 20% of its total assets in non-US dollar denominated non-US securities.
• May also enter into various derivative transactions for both hedging and non-hedging purposes. (These derivatives transactions include, but are not limited to, futures, options, swaps and foreign currency futures, forwards and options.)
• May use interest rate swaps, credit default swaps, options, futures contracts and/or mortgage-backed securities.

Fund Name: Lord Abbett High Yield Fund A
Ticker:LHYAX
Investment Advisor: Lord Abbett & Co. LLC
Year-to-Date Return: 5.59%
Benchmark: BofA Merrill Lynch High Yield Master II Constrained Index
Objective: The Fund seeks a high current income and the opportunity for capital appreciation to produce a high total return.
Investment Strategy:
• Invests at least 80% of its net assets in lower-rated debt securities, including corporate debt securities and convertible securities.
• May invest up to 20% of its net assets in foreign (including emerging market) securities that primarily are traded outside of US.
• May invest up to 20% of its net assets in municipal securities.
• Invests in derivatives (consisting principally of futures, forwards, options, and swaps).

In the table below, we have listed 10 top-performing funds through May 31, 2013 that we follow in our Fund Advisor database

 

10 Top Corporate-High Yield Funds Performance 

 

Fund Name 

Ticker 

% Year-to-date 

Total Return 

% 1 Month 

Total 

Return 

% 3  

Month 

Total 

Return 

% 6 Month 

Total  

Return 

% 5 Year 

Total 

Return 

Annualized 

Pioneer High Yield Fund A 

TAHYX 

7.90 

0.91 

4.54 

9.06 

7.37 

J Hancock High Yield Fund A 

JHHBX 

6.26 

-0.26 

3.20 

9.76 

 6.55 

  

Waddell & Reed Adv High Income Fund A 

UNHIX 

5.92 

0.16 

3.06 

8.23 

10.75 

  

Western Asset High Yield Fund A 

WAYAX 

5.95 

0.65 

3.32 

7.79 

  

Aegis High Yield Fund A 

AHYAX 

5.81 

1.11 

2.87 

6.98 

  

Lord Abbett High Yield Fund A 

LHYAX 

5.59 

-0.22 

2.86 

7.34 

10.24 

T. Rowe Price High Yield Fund 

PRHYX 

5.72 

-0.15 

3.31 

7.36 

9.89 

Rydex High Yield Strategy Fund A 

  

RYHDX 

5.60 

-2.34 

3.04 

6.25 

8.49 

Nuveen High Income Fund A 

FJSIX 

5.47 

-0.09 

2.80 

7.32 

8.39 

PIMCO High Yield Spectrum Fund A  

PHSAX 

5.47 

0.49 

3.59 

7.35 

  

Corporate-High Yield Objective Group 

  

3.46 

-0.45 

1.87 

4.74 

6.39 

  

  At the time of this article's writing, the author did not have positions in any of the funds mentioned.