Balancing risk and reward. It’s a common conundrum that investors face. With high-yield bond funds, also known as “junk” bond funds, you tend to receive relatively higher yields because these funds hold lower-quality — and riskier — bonds.
Our list of the best high-yield bond mutual funds includes the nine bond funds that rose to the top of our rigorous screening alongside a discussion of the ins and outs of these income-generating investments.
Methodology
To construct our list of the best high-yield bond mutual funds, we used Fidelity Investment’s mutual fund screener. We looked at high-yield municipal and taxable bond funds and screened for funds with overall Morningstar ratings of four stars or higher. We then screened for funds with minimum initial investments of $5,000 or below, 30-day SEC yields of 5% or higher, fund assets of $1 billion or above and net expense ratios of 1% or lower.
We then eliminated certain share classes, including funds that are closed to new investors and institutional funds, resulting in a list of 16 funds from different providers.
After our discussion of the best high-yield bond funds, see the complete methodology that explains how we filtered our list to the nine best funds.
Show summary
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Vanguard High-Yield Corporate Fund Investor Shares
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T. Rowe Price High Yield Fund
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PGIM High Yield Fund – Class A
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American Century High Income Fund Investor Class
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Osterweis Strategic Income Fund
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American Funds American High-Income Trust Class A
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BrandywineGLOBAL – High Yield Fund Class A
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BrandywineGLOBAL Corporate Credit Fund Class A
Why we picked it
The Vanguard High-Yield Corporate Fund (VWEHX) takes the top spot on our list of the best high-yield bond funds for April 2024 thanks, largely, to its low expense ratio. With its 0.23% expense ratio, you can expect to pay $2.30 for every $1,000 invested in the fund, relative to $7 per $1,000 in the next fund on our list, the T. Rowe Price High Yield Fund.
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As Vanguard notes in its fund literature, “Although this is a bond fund, high-yield bonds tend to have volatility similar to that of the stock market.” Something to keep in mind as you research high-yield bond funds: Investors sometimes equate bond investments with being “safer” than stocks. With junk bonds, this isn’t necessarily the case.
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The Vanguard High-Yield Corporate Fund invests primarily in corporate bonds with medium-to-lower credit quality ratings. Its average weighted maturity is 4.3 years. The longer the maturity, the more sensitive the fund’s share price is to interest rate fluctuations.
Pros
- Very low expense ratio
- No load (sales charge) to buy shares
Cons
- Short manager tenure at only two years
Who should use it?
Investors looking for a high level of income with minimal default risk and low potential for loss of principal should consider this fund. Per Vanguard, its High-Yield Corporate Fund “may be considered complementary to an already diversified portfolio.”
T. Rowe Price High Yield Fund
Yield
7.02%
Net expense ratio
0.7%
Minimum investment
$2,500
4.6/5
Why we picked it
With a slightly higher yield and meaningfully higher expense ratio, the T. Rowe Price High Yield Fund (PRHYX) is second only to Vanguard on our list.
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The fund has an average weighted maturity of 5.3 years. It invests in a mix of junk bonds as well as convertible securities and preferred stock either below investment grade or unrated by the major agencies. While management conducts extensive research to select investments it doesn’t think will default, investors tend to receive a higher yield in junk bond funds to offset the risk of default. In other words, in exchange for taking on the risk that issuers will default on the bonds in the fund, investors receive a relatively attractive interest rate in return.
Pros
- High yield, currently above 7%
- Relatively low expense ratio
Cons
- Relatively short manager tenure at only five years
Who should use it?
Investors in search of high income first and foremost, with a secondary objective of capital appreciation potential, should consider this fund. Per T. Rowe Price, its High Yield Fund carries “Significantly greater income potential than Treasury securities or investment-grade bonds in exchange for greater risk.”
PGIM High Yield Fund – Class A
Yield
7.22%
Net expense ratio
0.75%
Minimum investment
$1,000
4.48/5
Why we picked it
The PGIM High Yield Fund (PBHAX) has an average weighted maturity of 5.1 years. It invests in a diverse portfolio of junk bonds, a majority with BB and B credit ratings — which are considered below investment grade.
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Like most junk bond funds, this fund invests in bonds across industries. The fund noted that, during the fourth quarter of 2023, security selection detracted from performance, particularly in telecom, chemicals and midstream energy, while selections in media & entertainment, finance & insurance and consumer noncyclicals contributed to performance.
Pros
- Highest yield on our list, currently above 7.2%
- High net assets at over $18 billion
Cons
- Class A shares one-year cumulative total return trailed benchmark index
- Charges sales load to buy shares
Who should use it?
Per PGIM, this fund “may be appropriate for investors willing to take on higher risk to achieve higher current income and potential capital appreciation.”
Fidelity Capital & Income Fund
Yield
6.16%
Net expense ratio
0.93%
Minimum investment
$0
4.4/5
Why we picked it
Alongside a five-star rating, fund-ratings firm Morningstar said the Fidelity Capital & Income Fund’s (fa*gIX) “strategy can be among the riskiest of its kind, but it’s a great fit for some investors.” Part of the risk comes from the fact that the fund also owns stocks. The fund has trimmed its equity allocation from roughly 20% over the last decade to approximately 15%, as of the end of 2023. To illustrate, the fund’s eighth-largest holding, as of March 2024, is Facebook parent, Meta Platforms.
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Aside from this equity element, the fund focuses on “debt securities, including defaulted securities, with an emphasis on lower-quality debt securities” and “companies in troubled or uncertain financial condition.” So it’s among the most aggressive on our list. The Fidelity Capital & Income Fund’s weighted average maturity is 16.6 years.
Pros
- No minimum investment requirement
- Lengthy manager tenure at 21 years
Cons
- Relatively high expense ratio
Who should use it?
Investors who don’t mind taking on some equity risk in exchange for added performance should consider this fund. Per Fidelity, the managers “apply an opportunistic investment approach, which results in tactical positions aimed to capitalize on relative value across a company’s capital structure, including high-yield bonds, stocks, convertible securities, leveraged loans and preferred stocks.”
American Century High Income Fund Investor Class
Yield
6.89%
Net expense ratio
0.78%
Minimum investment
$2,500
4.16/5
Why we picked it
With Ford, Carnival and Charter Communications bonds among its top holdings, American Century says its High Income Fund (AHIVX) invests in bonds from companies it believes “can carry their debt loads while delivering strong cash flows that help improve their financial position.”
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The fund’s weighted average maturity is 5.1 years with more than 66% of its holdings maturing within three to seven years.
Pros
- Relatively high yield at 6.9%
- No sales load charge to buy shares
Who should use it?
Investors who want “a complement to core bond and equity investments” should consider this fund.
Osterweis Strategic Income Fund
Yield
6.33%
Net expense ratio
0.86%
Minimum investment
$5,000
3.79/5
Why we picked it
While nearly 80% of the Osterweis Strategic Income Fund (OSTIX) holdings are in bonds with BB and lower ratings, or no rating from a major credit agency at all, management emphasizes a flexible strategy that allows it to move away from certain sectors as they become less attractive and even into investment grade bonds during periods of “declining interest rates.”
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That said, the fund also noted, “Unless we get meaningful cuts to interest rates in 2024, it is unlikely that investment grade will outperform generally from here, so we are sticking with our positioning in shorter-dated, mostly non-investment grade bonds” and a sizable cash position that will allow management to seize opportunities as they come up.
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The Osterweis Strategic Income Fund has an average weighted maturity of 2.7 years.
Pros
- Longest manager tenure on our list at 22 years
- No sales load charge to buy shares
Cons
- Relatively high minimum investment at $5,000
Who should use it?
With the highest minimum investment requirement on our list, this fund may be more appropriate for investors with larger portfolios.
American Funds American High-Income Trust Class A
Yield
6.61%
Net expense ratio
0.72%
Minimum investment
$250
3.76/5
Why we picked it
As Morningstar notes, alongside a neutral four-star rating, the American Funds American High-Income Trust (AHITX) has gotten less aggressive in the past couple of years, which the rating agency calls “encouraging.” Less aggressive meaning it has moved away from investing in the lowest-grade junk bonds with CCC or below ratings. As of the end of 2023, that category makes up just 13.2% of the fund, compared to a 73.2% concentration in B to BBB/Baa-rated bonds.
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The fund’s average duration is three years.
Pros
- Low minimum investment requirement at $250
- High net assets at over $19 billion
- Lengthy manager tenure at 20 years
Cons
- Charges sales load to buy shares
Who should use it?
With a minimum investment requirement of just $250, this fund may be appropriate for investors with smaller portfolios, despite the sales load.
BrandywineGLOBAL – High Yield Fund Class A
Yield
6.64%
Net expense ratio
0.97%
Minimum investment
$1,000
3.12/5
Why we picked it
The weighted average maturity of the BrandywineGLOBAL – High Yield Fund Class A (BGHAX) is 4.8 years. This Brandywine fund invests primarily in below-investment-grade bonds. Nearly 85% of the fund’s portfolio is in bonds rated BB or lower with a roughly 5% cash allocation and just over 10% in BBB or higher bonds.
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The fund’s relatively high 0.97% expense ratio negatively impacted its position in our rankings.
Pros
- Five-star overall rating from Morningstar
- Relatively low minimum investment requirement of $1,000
Cons
- Relatively high expense ratio
- Charges sales load to buy shares
Who should use it?
Investors who don’t mind paying a higher expense ratio in exchange for active management and the potential for outperformance might consider this fund.
BrandywineGLOBAL Corporate Credit Fund Class A
Yield
6.38%
Net expense ratio
0.88%
Minimum investment
$1,000
3.06/5
Why we picked it
The main difference in strategy between Brandywine’s Corporate Credit Fund (BCAAX) and its High Yield Fund is that the former invests in a mix of investment-grade and below-investment-grade bonds. That said, as of March 2024, only around 17% of its holdings were rated BBB or higher.
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The fund has an average weighted maturity of five years.
Pros
- Five-star overall rating from Morningstar
- Lengthy manager tenure at 18 years
Cons
- Relatively high expense ratio
- Charges sales load to buy shares
Who should use it?
Investors who want greater exposure to investment-grade bonds and don’t mind paying a higher expense ratio for active management should consider this fund.
Our picks at a glance
| Rank | Fund | Yield | Net expense ratio | Minimum investment |
|---|---|---|---|---|
| 1 | Vanguard High-Yield Corporate Fund Investor Shares (VWEHX) | 6.40% | 0.23% | $3,000 |
| 2 | T. Rowe Price High Yield Fund (PRHYX) | 7.02% | 0.70% | $2,500 |
| 3 | PGIM High Yield Fund Class A (PBHAX) | 7.22% | 0.75% | $1,000 |
| 4 | Fidelity Capital & Income Fund (fa*gIX) | 6.16% | 0.93% | $0 |
| 5 | American Century High Income Fund Investor Class (AHIVX) | 6.89% | 0.78% | $2,500 |
| 6 | Osterweis Strategic Income Fund (OSTIX) | 6.33% | 0.86% | $5,000 |
| 7 | American Funds American High-Income Trust Class A (AHITX) | 6.61% | 0.72% | $250 |
| 8 | BrandywineGLOBAL High Yield Fund Class A (BGHAX) | 6.64% | 0.97% | $1,000 |
| 9 | BrandywineGLOBAL Corporate Credit Fund Class A (BCAAX) | 6.38% | 0.88% | $1,000 |
Why consider high-yield bond mutual funds?
- Income: High-yield bonds tend to offer higher rates of return than relatively safe bonds. However, this reward comes with risk because the issuers of high-yield bonds are considered to be at a greater risk of default.
- Diversification: For risk-averse stock market investors, high-yield bonds can generate similar returns with less volatility.
- Improved fundamentals: Coming off a period of low-interest rates in 2021 and 2022 and more conservative balance sheet management during the pandemic, junk bond issuers are in better financial shape than they have been in roughly a decade.
- Consistency: Since 1980, high-yield bonds have only produced negative returns in seven years with no instances of consecutive years of downside.
What are high-yield bonds?
High-yield bonds, sometimes called “junk” bonds, are issued by corporations and viewed by the credit ratings agencies — Moody’s, Standard & Poor’s, and Fitch — as having a higher risk of default, i.e., not returning the principal or paying interest on a bond to investors at maturity. These bonds — and the funds that own them — generally offer a higher rate of return than safer bonds in exchange for the added risk investors take by investing in them.
Like stock and other types of mutual funds and ETFs, high-yield bond funds can be passively or actively managed. However, according to Morningstar, several factors unique to junk bonds make active management the preferred approach. So, it’s no surprise that all of the funds on our list of the best high-yield bonds are actively managed.
Considering high-yield bonds in your portfolio
T. Rowe Price makes the case for high-yield bonds as one way to construct a diversified portfolio. For fixed-income investors, they “provide the potential for higher yields and greater returns, while also adding important diversification from traditional fixed income investments.” And, for stock investors, “high yield bonds can offer similar returns with lower volatility and potential downside than stocks,” making them potentially attractive to the more “risk averse.”
Several asset management firms, including Fidelity Investments, argue that, thanks in part to the pandemic, junk bond issuers are in better shape financially than they have been in a while. Many companies that issue junk bonds were able to lock in low interest rates in 2020 and 2021 to raise operating capital. Plus, these corporations carry less debt than they have in a while, coming off a period during the pandemic when they more conservatively managed their balance sheets.
Understanding the risks of high-yield bonds
The overarching risk of high-yield bonds is that their issuers are more likely to default, as indicated by their lower credit rating, represented by a letter system of A (best) to D (worst), with slight variations from agency to agency,
Now, let’s consider some specific risks to be aware of as you think about investing in high-yield bond funds.
Interest-rate risk
As interest rates go up, bond prices generally come down. However, high-yield bonds are less sensitive to interest-rate risk due to their shorter maturities. A short time to maturity simply means there’s less time in the life cycle of a bond to be impacted by interest rates.
Economic risk
When the economy goes south, investors often shun high-yield bonds in a “flight to safety” via instruments such as US Treasury bills.
Liquidity risk
If you own an individual bond, you might not have an easy time selling it. This is one advantage of buying a fund that owns dozens, if not hundreds, of individual high-yield bonds, which you can sell just like any other mutual fund. Plus, you’re spreading your risk across issuers and relying on the bond selection of professional money managers.
How to choose the right high-yield bond fund
Consider the factors we used — detailed in our methodology below — when you assess high-yield bond funds. While yield is important, a hefty expense ratio can at least partially offset a high yield.
In addition to reviewing our rankings, you can go to the fund websites directly. These sites detail not only the broad management strategy and approach to bond selection but list the fund’s holdings. While you won’t be able to individually assess each of the names on the list, seeing a fund’s holdings can give you a better idea of the types of companies the fund buys bonds from.
Methodology
To construct our list of the best high-yield bond mutual funds, we used Fidelity Investment’s mutual fund screener. We looked at high-yield municipal and taxable bond funds and screened for funds with overall Morningstar ratings of four stars or higher. We then screened for funds with minimum initial investments of $5,000 or below, 30-day SEC yields of 5% or higher, fund assets of $1 billion or above and net expense ratios of 1% or lower.
We then eliminated certain share classes, including funds that are closed to new investors and institutional funds, resulting in a list of 16 funds from different providers.
From this list, we rated funds according to the following criteria:
30-day SEC yield (30%)
Investors often turn to high-yield bond funds for the income they provide, so we scored funds with higher 30-day SEC yields higher.
Net expense ratio (20%)
Expense ratios can eat away at returns, so we scored funds with lower net expense ratios higher.
Load (15%)
Some funds on our list charge sales loads, which also reduce overall returns, so we scored funds that do not charge sales loads higher.
Assets under management (10%)
Funds with a greater amount of assets under management were scored higher, as it can be an indication of financial stability and investor trust.
Minimum initial investment (10%)
We scored funds with lower minimum initial investments higher, as lower minimums increase access to investors with smaller portfolios.
Morningstar Overall Star Rating (10%)
We scored funds with higher overall Morningstar ratings higher. However, all the funds on our list have four- or five-star overall ratings from Morningstar.
Manager tenure (5%)
We scored funds with managers who have longer tenures at the fund higher, as longevity can be an indication that a manager is performing consistently well for investors.
Frequently asked questions (FAQs)
One benefit of investing in high-yield bond funds is you can expect a higher rate of return compared to safe bond investments. However, you take on additional risk in exchange for the anticipated upside. Also, by investing in high-yield bond funds, which contain a basket of high-yield bonds screened and selected by financial pros, you mitigate some of the risks specific to buying individual bonds. This is one benefit of the diversification investing a mutual fund or ETF can bring.
Maturity refers to the amount of time until a bond issuer has to repay the principal and interest due on a bond. Bonds with shorter maturities — including some on our list of the best high-yield bond funds — are less sensitive to fluctuations in interest rates.
At a glance, duration appears to be interchangeable with maturity. However, it’s anything but. Duration is a measure of a bond’s interest rate risk, which takes into account its maturity, yield and other factors. The higher the duration, the more susceptible a bond is to interest rate risk. As rates go up, bond prices fall. As rates drop, bond prices rise, as investors seek yield in more aggressive investments, relative to, for example, cash and Treasury bills. This matters in the current interest rate environment with most economists and financial analysts expecting the Federal Reserve to cut rates later in 2024.
High-yield bond funds can provide diversification within a fixed-income portfolio. This is because their returns tend to be minimally correlated to safer fixed-income investments, such as US Treasury bills and investment-grade (as opposed to junk bonds with lower credit ratings) debt. This diversification doesn’t mean you can’t lose money. It just helps even out overall portfolio risk. High-yield bond funds can also complement stock-heavy portfolios, potentially with less volatility than stocks.
