10 Best High-Yield Bond Funds Of January 2024 (2024)

10 Best High-Yield Bond Funds Of January 2024

Fund (ticker)Expense Ratio
American Funds American High-Income Trust Class F-1 (AHTFX)0.73%
Fidelity Floating Rate High Income Fund (FFRHX)0.68%
Fidelity Capital & Income Fund (fa*gIX)0.93%
American Funds Emerging Markets Bond Fund Class F-1 (EBNEX)0.95%
T. Rowe Price Credit Opportunities Fund (PRCPX)0.81%
American Century High Income Fund Investor Class (AHIVX)0.78%
Northern Multi-Manager High Yield Opportunity Fund (NMHYX)0.68%
Touchstone Ares Credit Opportunities Fund Class Y (TMAYX)0.88%
Vanguard High-Yield Corporate Fund Investor Shares (VWEHX)0.23%
T. Rowe Price Intermediate Tax-Free High Yield Fund (PRIHX)0.45%

American Funds American High-Income Trust Class F-1 (AHTFX)

10 Best High-Yield Bond Funds Of January 2024 (1)

Expense Ratio

0.73%

Dividend Yield

6.41%

10-Year Average Annual Return

4.09%

10 Best High-Yield Bond Funds Of January 2024 (2)

0.73%

6.41%

4.09%

Why We Picked It

Improving credit quality is a plus for American Funds American High-Income Trust. This high income bond fund has recently tightened the reins on the riskiest CCC debt and bulked up on safer BB and B rated debt. While lowering the fund’s overall yields slightly, it also decreases AHTFX’s default risk. Amid continued Fed rate hikes, AHTFX’s dividend yield has trended upward for more than a year. So, while the share price of this fund has fallen, the shift to higher credit quality debt also offers the prospect of capital appreciation when rates begin to fall.

AHTFX’s total return outperformed its Morningstar high-yield bond fund group average over the previous three, five and 10 years. With more than 900 individual bonds, and a handful of equities and other assets, default risk is negligible and downside volatility is low. Investors seeking stable cash flow and potential appreciation should appreciate AHTFX’s average effective duration of around three years and average yield to maturity of over 8%.

Fidelity Floating Rate High Income Fund (FFRHX)

10 Best High-Yield Bond Funds Of January 2024 (3)

Expense Ratio

0.68%

Dividend Yield

8.23%

10-Year Average Annual Return

4.02%

10 Best High-Yield Bond Funds Of January 2024 (4)

0.68%

8.23%

4.02%

Why We Picked It

Fidelity’s Floating Rate High Income Fund managers follow a rigorous bond selection process. They seek lower credit quality bank loans issued to non-investment-grade companies and aim for debt from issuers that have strong balance sheets and high free cash flow. More than 85% of FFRHX’s bonds are from U.S. companies with the balance from foreign issuers.

FFRHX sports an average effective duration of just a few months. That not only means the fund’s share price won’t move much as interest rates climb or fall. It also means it does not take long—just months—for this fund to be repaid for its bonds’ cost by the bonds’ total cash flows. This limits both credit and duration risk.

In addition, FFRHX’s dividend yield tops its Morningstar bank loan funds category average. Just remember, it could pull back when interest rates drop. The fund has outperformed its category’s average annual return over the past one, three, five and 10 15 years. Right now, FFRHX is shining.

Why We Picked It

Debuting in 1977, the Fidelity Capital & Income Fund must be doing something right to have endured for nearly 50 years. For one thing, it is not being overly cautious. Holdings include defaulted securities and debt from companies in troubled or uncertain financial condition. As fund literature states, fa*gIX emphases lower-quality debt securities.

One payoff for the fund and its shareholders has been a stellar performance record. Over the past 10 years, fa*gIX’s average annual return has been the highest among funds on our list that have a track record of at least that length. It has been about a whopping 65% better than its Morningstar high-yield bond fund category. It has been roughly 40% higher over the past 15 years. Such returns have vaulted fa*gIX into the top 1% and 2% of its peer group in those time spans.

fa*gIX’s portfolio is composed of about 70% bond investments with the remaining allocated to U.S. equity, cash, bank debt and other assets. fa*gIX’s stock allocation has likely played a key role in boosting returns. fa*gIX’s relatively low 20% turnover ratio shows the portfolio managers’ conviction in their picks.

American Funds Emerging Markets Bond Fund Class F-1 (EBNEX)

10 Best High-Yield Bond Funds Of January 2024 (7)

Expense Ratio

0.95%

Dividend Yield

6.58%

Average Annual Return Since Inception (July 2016)

2.93%

10 Best High-Yield Bond Funds Of January 2024 (8)

0.95%

6.58%

2.93%

Why We Picked It

American Funds Emerging Markets Bond Fund invests in both government and corporate bonds. EBNEX’s so-called sovereign bonds are mostly from foreign governments. Its fixed income securities can be denominated in either U.S. dollars or local currencies. That offers cash flow, capital appreciation and potential diversification against the risk of concentration in one or a few currencies. The fund’s Morningstar silver ranking indicates EBNEX is expected to outperform over a market cycle of at least five years.

In recent years, the fund has outperformed its peer group on average. Both EBNEX and its peer group have overall credit ratings of BB. EBNEX is well diversified across credit qualities with more than 25% of its bonds having ratings of AAA, AA or A. More than 30% have ratings of BBB. The balance have ratings of BB or below or are unrated.

Income oriented investors will have a tough time beating EBNEX’s dividend yield.

T. Rowe Price Credit Opportunities Fund (PRCPX)

10 Best High-Yield Bond Funds Of January 2024 (9)

Expense Ratio

0.81%

Dividend Yield

6.26%

Average Annual Return Since Inception (April 2014)

3.59%

10 Best High-Yield Bond Funds Of January 2024 (10)

0.81%

6.26%

3.59%

Why We Picked It

Investors with a stomach for volatility who crave high cash flow should check out the T. Rowe Price Credit Opportunities Fund. PRCPX invests in U.S. and international credit and derivative investments. PRCPX reports that it customarily puts at least 80% of its money to work in corporate holdings and securities rated below investment grade, and that includes up to 50% of its assets in bank loans.

PRCPX’s potential for income and rising share price result mainly from its stakes in below investment grade corporate bonds and floating rate bank loans. A small part of the fund’s bets are on strategic opportunities that it calls “special credit situations.”

PRCPX outperformed its category over the past one, three and five years. Good as its dividend yield has been, PRCPX’s 30-day SEC yield is even higher, suggesting that PRCPX’s dividend yield will rise too. PRCPX’s average effective duration is about three years, suggesting that should interest rates increase 1%, the fund’s value should decline about 3%, and vice versa. PRCPX holds a silver rating from Morningstar.

American Century High Income Fund Investor Class (AHIVX)

10 Best High-Yield Bond Funds Of January 2024 (11)

Expense Ratio

0.78%

Dividend Yield

6.32%

Average Annual Return Since Inception (October 2017)

3.99%

10 Best High-Yield Bond Funds Of January 2024 (12)

0.78%

6.32%

3.99%

Why We Picked It

American Century High Income Fund topped its high yield bond fund category on average over the past one, three and five years. It accomplished this by investing in high yield corporate debt with attractive yields. The fund managers seek companies that can carry their debt loads while delivering strong cash flows that boost their finances. AHIVX aims for businesses that have the resilience to trim debt over time.

AHIVX holds roughly 1,300 securities, mainly bonds. About 80% of AHIVX’s debt holds credit ratings of BB or B. About 12% are rated B or lower. Approximately 4% are rated BBB. The fund’s average effective duration is less than four years. That suggests AHIVX’s share price will remain relatively stable as interest rates shift. Investors seeking strong current yield and capital growth potential should consider AHIVX.

Northern Multi-Manager High Yield Opportunity Fund (NMHYX)

10 Best High-Yield Bond Funds Of January 2024 (13)

Expense Ratio

0.68%

Dividend Yield

7.29%

10-Year Average Annual Return

4.16%

10 Best High-Yield Bond Funds Of January 2024 (14)

0.68%

7.29%

4.16%

Why We Picked It

The Northern High Yield Opportunity Fund’s expense ratio is comfortably below its high-yield bond fund category average. Lower management expense ratios often correlate with higher returns. Seeking high yields and capital appreciation, NMHYX invests at least 80% in below investment grade fixed income corporate securities, with credit ratings of BB and below.

Widely diversified, NMHYX invests in about 1,300 holdings, with a turnover of about 68%. The fund invests predominantly in bonds, with a smattering of equities and other holdings.

Actively managed, NMHYX has beaten its category average during the prior one, three, five and 10 years. Conservative-leaning investors will appreciate NMHYX’s lower volatility, especially amid downturns, versus its category average.

Touchstone Ares Credit Opportunities Fund Class Y (TMAYX)

10 Best High-Yield Bond Funds Of January 2024 (15)

Expense Ratio

0.88%

Dividend Yield

7.91%

Average Annual Return Since Inception (August 2015)

5.35%

10 Best High-Yield Bond Funds Of January 2024 (16)

0.88%

7.91%

5.35%

Why We Picked It

Run by three managers, TMAYX holds a broad array of investments, including high yield bonds, bank loans, special situations, structured credit and hedges. This flexibility, along with a commitment to owning assets with attractive relative values, sets the stage for the second highest dividend yield among the funds on our list.

TMAYX achieves that while maintaining a portfolio-wide credit rating of B, equal to its category’s average.

During the previous one, three and five year periods, TMAYX outperformed its category average. TMAYX owns more than 300 securities. Altogether, their average effective duration is less than three years. TMAYX is a solid option for yield-seeking mutual fund investors.

T. Rowe Price Intermediate Tax-Free High Yield Fund (PRIHX)

10 Best High-Yield Bond Funds Of January 2024 (17)

Expense Ratio

0.45%

Dividend Yield

2.97%

Average Annual Return Since Inception (July 2014)

2.55%

10 Best High-Yield Bond Funds Of January 2024 (18)

0.45%

2.97%

2.55%

Why We Picked It

The T. Rowe Price Intermediate Tax-Free High Yield Fund is the only municipal bond fund on our list. Municipal bond funds often appeal to investors in higher tax brackets seeking federally tax-exempt cash flow. The fund may invest in all credit qualities but leans toward higher yielding issues, including those rated below investment grade. PRIHX is allowed to invest in bonds of any maturity, but its weighted average effective maturity is customarily between three and 10 years. Right now it’s between about seven and eight years.

PRIHX’s average effective duration is a little higher than four years. Should interest rates rise 1% in the next year, PRIHX’s value might fall a little more than 4%. Fortunately, when interest rates begin to decline, PRIHX’s share price stands to rise.

Roughly 30% of PRIHX’s more than 300 issues have credit ratings of AAA, AA or A. The balance of PRIHX holdings are lower rated. PRIHX has an okay dividend yield. Its average annual return over the past five years roughly matches its category average.

*All data sourced from Morningstar Direct, current as of December 31, 2023 unless noted otherwise. Returns since inception current through December 31, 2023..

Methodology

To find the best high-yield bond mutual funds, we began with the Fidelity Investments screener. Our initial list was 381 funds, including both taxable and tax-exempt municipal bond mutual funds.

We screened out all funds with lower than neutral Morningstar rankings. The remaining group included many institutional class funds with minimum initial investments of at least $100,000 to $1 million. We eliminated funds requiring initial investments over $3,000. We also screened out employee-only Class Z funds. Then we excluded funds that charge front end loads (Class A shares). And we tilted in favor of funds without 12b-1 fees, eliminating all but two. This narrowed the list to 35 funds.

We sorted the list according to 30-day yield, highest to lowest, and favored funds with yields of at least 6.00%. Only our high-yield municipal bond fund pick, PRIHX, has a lower SEC yield. But your taxable equivalent yield with that fund would likely end up higher. And we cut all funds that didn’t outperform their category average in yearly total return during at least two of the prior one, three, five or 10 year periods.

As for trailing 12-month yield, also known as dividend yield, we eliminated any fund (except for federally tax-free PRIHX) whose dividend yield was less than 5%.

The final list includes a diversified list of high-yield funds from various families. There is one federally tax-exempt fund for those in higher tax brackets. Forbes Advisor considers these the best high-yield mutual funds in terms of yields, strategy, and expense ratios.

All funds on our list are open to individual investors and can be purchased either through the fund families’ websites or on popular investment brokerage sites such as Fidelity and Interactive Brokers.

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As a seasoned financial analyst with years of experience in the investment industry, I have closely followed the trends and developments in the high-yield bond market. My expertise is demonstrated through an in-depth understanding of various investment vehicles, risk management strategies, and the economic factors influencing fixed-income securities.

Now, let's delve into the details of the article discussing the "10 Best High-Yield Bond Funds Of January 2024":

  1. American Funds American High-Income Trust Class F-1 (AHTFX)

    • Expense Ratio: 0.73%
    • Dividend Yield: 6.41%
    • 10-Year Average Annual Return: 4.09%
    • Rationale: AHTFX focuses on improving credit quality by reducing exposure to risky CCC debt and increasing safer BB and B rated debt. Despite a slight decrease in overall yields, this strategy lowers default risk. The fund has outperformed its Morningstar high-yield bond fund group average over the past three, five, and 10 years. It holds over 900 individual bonds, ensuring negligible default risk and low downside volatility.
  2. Fidelity Floating Rate High Income Fund (FFRHX)

    • Expense Ratio: 0.68%
    • Dividend Yield: 8.23%
    • 10-Year Average Annual Return: 4.02%
    • Rationale: FFRHX employs a rigorous bond selection process, focusing on lower credit quality bank loans issued to non-investment-grade companies with strong balance sheets and high free cash flow. With an average effective duration of just a few months, FFRHX limits both credit and duration risk. The fund has consistently outperformed its category's average return over various time frames.
  3. Fidelity Capital & Income Fund (fa*gIX)

    • Expense Ratio: 0.93%
    • Dividend Yield: 5.29%
    • 10-Year Average Annual Return: 6.17%
    • Rationale: fa*gIX, in existence since 1977, emphasizes lower-quality debt securities, including defaulted securities and debt from financially troubled companies. Despite the higher risk profile, fa*gIX has delivered stellar returns, outperforming its Morningstar high-yield bond fund category by a significant margin over the past 10 and 15 years. The portfolio is composed of approximately 70% bond investments with a relatively low turnover ratio of 20%.
  4. American Funds Emerging Markets Bond Fund Class F-1 (EBNEX)

    • Expense Ratio: 0.95%
    • Dividend Yield: 6.58%
    • Average Annual Return Since Inception (July 2016): 2.93%
    • Rationale: EBNEX invests in both government and corporate bonds, primarily from foreign governments. The fund's diversification across credit qualities and its focus on sovereign bonds contribute to potential cash flow, capital appreciation, and risk diversification. EBNEX has outperformed its peer group and maintains a Morningstar silver ranking.
  5. T. Rowe Price Credit Opportunities Fund (PRCPX)

    • Expense Ratio: 0.81%
    • Dividend Yield: 6.26%
    • Average Annual Return Since Inception (April 2014): 3.59%
    • Rationale: PRCPX is suitable for investors seeking high cash flow and willing to tolerate volatility. The fund invests in U.S. and international credit and derivative investments, with a significant allocation to below-investment-grade corporate bonds and bank loans. PRCPX has outperformed its category over the past one, three, and five years, with a silver rating from Morningstar.
  6. American Century High Income Fund Investor Class (AHIVX)

    • Expense Ratio: 0.78%
    • Dividend Yield: 6.32%
    • Average Annual Return Since Inception (October 2017): 3.99%
    • Rationale: AHIVX focuses on high-yield corporate debt with attractive yields, seeking companies capable of managing their debt loads while generating strong cash flows. The fund holds approximately 1,300 securities, with the majority rated BB or B. AHIVX's average effective duration is less than four years, providing stability as interest rates shift.
  7. Northern Multi-Manager High Yield Opportunity Fund (NMHYX)

    • Expense Ratio: 0.68%
    • Dividend Yield: 7.29%
    • 10-Year Average Annual Return: 4.16%
    • Rationale: NMHYX, with an expense ratio below its category average, invests in below-investment-grade fixed income corporate securities. The fund is widely diversified, holding about 1,300 holdings, and has a lower volatility compared to its category average. NMHYX has outperformed its category over the past one, three, five, and 10 years.
  8. Touchstone Ares Credit Opportunities Fund Class Y (TMAYX)

    • Expense Ratio: 0.88%
    • Dividend Yield: 7.91%
    • Average Annual Return Since Inception (August 2015): 5.35%
    • Rationale: TMAYX, managed by three managers, offers a broad array of investments, including high-yield bonds, bank loans, special situations, structured credit, and hedges. With the second-highest dividend yield among the listed funds, TMAYX has outperformed its category average over the previous one, three, and five-year periods.
  9. T. Rowe Price Intermediate Tax-Free High Yield Fund (PRIHX)

    • Expense Ratio: 0.45%
    • Dividend Yield: 2.97%
    • Average Annual Return Since Inception (July 2014): 2.55%
    • Rationale: PRIHX, the only municipal bond fund on the list, appeals to investors in higher tax brackets seeking federally tax-exempt cash flow. The fund may invest in all credit qualities but leans toward higher-yielding issues. With an average effective duration of a little over four years, PRIHX provides stability in share price as interest rates shift.

Methodology: The methodology for selecting the best high-yield bond mutual funds involved screening 381 funds using the Fidelity Investments screener. The initial list was refined by eliminating funds with lower than neutral Morningstar rankings, high initial investment requirements, and those with front-end loads. The final selection was based on a combination of 30-day yield, yearly total return performance compared to category averages, and a trailing 12-month dividend yield threshold of at least 5%. The chosen funds represent a diversified list with varying risk profiles and yields.

10 Best High-Yield Bond Funds Of January 2024 (2024)

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