Two High-Yield Funds To Watch

NEW YORK (TheStreet -- Recent economic conditions have provided ample fuel for distressed-debt and high-yield corporate bonds.

A recovering economy has encouraged investors to regain their appetite for risk, and improved cash flow has prompted firms to pay interest on their debt.

There are a number of ways for investors to gain access to distressed-debt and high-yield corporate bonds. Year to date, the SPDR Barclays Capital High Yield Bond ETF(JNK Quote) has climbed nearly 33%, while the introduction of the Third Avenue Focused Credit(TFCVX Quote) has given investors a more actively managed strategy.

I believe that both of these funds still have tremendous upside potential through the end of 2009. Investors are looking for yield, and as the year draws to a close, investors tend to look back and add funds to their portfolio that have been performing well.

SPDR Barclays Capital High Yield Bond ETF

JNK tracks the Barclays Capital High Yield Very Liquid Index. The fund currently has 109 holdings with an average credit quality of B2 and the average duration is 4.6 years. Top holdings include bonds from GMAC(GJM Quote) and AIG(AIG Quote).

JNK's 0.40% management fee makes this ETF more expensive than aggregate bond index ETFs like Barclays Aggregate Bond Fund(AGG Quote), but investors are paying for a narrow focus.

Since the underlying debt is risky and volatile, owners of JNK should be aware of any differences between the fund's market price and its underlying value. Even though more than a million shares of this fund trade hands in an average day, there can still be discrepancies between this fund's pricing and its underlying debt.