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.
- Read more: 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.
View the slideshow version here.
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
9. Ivy High Income Fund (WHIAX)
Total Net Assets 12/31/14: $8.32B
Total Net Assets 12/31/13: $10.31B
8. Lord Abbett Bond Debenture Fund (LBNDX)
Total Net Assets 12/31/14: $9.08B
Total Net Assets 12/31/13: $8.54B
7. T. Rowe Price High Yield Fund (PRFHX)
Total Net Assets 12/31/14: $9.43B
Total Net Assets 12/31/13: $9.87B
6. JPMorgan High Yield Fund (OHYAX)
Total Net Assets 12/31/14: $9.86B
Total Net Assets 12/31/13: $10.79B
5. PIMCO High Yield (PHIYX)
Total Net Assets 12/31/14: $10.36B
Total Net Assets 12/31/13: $15.64B
4. Fidelity® Capital and Income Fund (FAGIX)
Total Net Assets 12/31/14: $10.39B
Total Net Assets 12/31/13: $10.83B
3. BlackRock High Yield Bond Portfolio (BHYAX)
Total Net Assets 12/31/14: $14.84B
Total Net Assets 12/31/13: $13.08B
2. Vanguard High Yield Corporate Fund (VWEHX)
Total Net Assets 12/31/14: $16.85B
Total Net Assets 12/31/13: $16.21B
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
Read more: Warning: Bond Funds That Act Like Stocks
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