This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Race to Safety: Best High-Yielders

NEW YORK ( TheStreet) -- Struggling to obtain income, investors have raced to buy high-yield bonds. High-yield funds have returned 7.9% this year, compared to a gain of 3.7% for the Barclays Capital Aggregate bond index, according to Morningstar. Attracted by the strong returns, investors have poured $16 billion into high-yield funds this year, a big gain for a category with $227 billion in total assets.

Now some analysts worry that too much cash is rushing into high-yield bonds, which are rated below-investment grade. Fund companies apparently share the concern, and they have shut portfolios to new investors. Funds that closed recently include T. Rowe Price High-Yield (PRHYX) and Vanguard High-Yield Corporate (VWEHX).

Should you avoid high-yield bonds entirely? Not necessarily. Default rates are low, and the bonds pay competitive yields. But to limit risks, consider funds that hold short-term high-yield securities. Bonds with maturities of two or three years have tiny default rates, and they yield 3% to 5% -- a rich payout at a time when 3-year Treasuries yield 0.28%.

When interest rates rise, many bonds sink. But short-term securities often prove resilient. Funds that hold short-term high-yield bonds include Intrepid Income (ICMYX), RiverPark Short-Term High Yield (RPHYX) and Thornburg Strategic Income (TSIAX).

Intrepid Income ranks as one of the most cautious funds in the high-yield category. Besides buying short-term securities, the portfolio managers avoid the shakiest issues in the high-yield universe. "We are trying to offer a higher-quality alternative that is somewhere between investment-grade funds and typical high-yield funds," says portfolio manager Ben Franklin.

When the Intrepid managers can't find bargains, they hold cash. In June 2008, the fund had 33% of assets in cash. That helped to limit losses when markets collapsed later in the year. But the high-quality securities lagged in 2009 when the market soared. The fund currently yields 4.4%, compared to a yield of 5.7% for the average high-yield fund.

Another stable choice is RiverPark Short-Term High Yield. The fund has an average maturity of five months, and most holdings recently had maturities of 60 days or less. RiverPark yields 3.7%. "We are trying to provide higher yields on cash for investors who have a time horizon of at least three or four months," says portfolio manager David Sherman.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs