It's not easy finding yield. Unless, that is, you know where to look.

The last few years have been difficult for high-yield fund managers. A global economic recovery and underwhelming inflation have made it tough to find decent paper with a steady payout. As a result, the average high-yield fund has only returned 11.2% per year since 2003, according to fund-tracker Morningstar. That's not necessarily a jaw-dropping return for one of the market's riskier asset classes.

Despite the slim pickings, Andrew Feltus, portfolio manager for the $845 million Pioneer Global High Yield fund (PGHYX), has been successful in spotting value, especially in emerging markets. His fund has returned an average 16.85% annually over the past three years, putting it in the top 2% of all funds in its Morningstar category. Furthermore, his fund is yielding 7.3%, which Morningstar says is over 40 basis points more than the average high-yield fund payout.

Feltus talked with about the best places to locate yield, the problems plaguing the U.S. auto industry and why he is lightening up on his emerging-markets bets after they made him so much money. The last few years have not been too kind to high-yield investors. What has enabled you to buck the trend?

Andrew Feltus: We are a global high-yield fund, so we have the flexibility to go anywhere we see value. Your typical high-yield fund focuses on the United States. We are approximately 27% in emerging markets now, 10% in foreign currency high-yield bonds and the remainder in core U.S. high yield. And it's worth noting that this is the lowest weighting we've had in emerging markets in the history of the fund.

Why the reduction?

We've been underweight emerging markets, at least relative to our index, for about a year at this point. It's really a function of risk vs. reward. There has been a lot of hype about emerging markets for the last year and the performance has been strong. But spreads have gotten very tight.

Our feeling is that while there has been substantial improvement in the fundamentals of emerging markets, at these tight spreads there is very little upside.

That position has not been great for us -- maybe we were early -- over the past year. But this month it paid off because there has been a vicious correction in emerging markets.

Which emerging markets are you in?

Our largest nonconsensus bet is Asia, particularly China. In emerging-markets stocks, Asia is very well represented, but that's not the case when it comes to bonds. In fact, it's the exact opposite. Latin America really dominates the high-yield market. And while we like the Brazil, Peru and Colombia stories, the political risk in those countries, with elections on the horizon, makes us worried about those tight valuations.

So we focus on stories related to China. I can't tell you how fast China is growing. Maybe 6%, or 12%, or 9%. Who knows? But I can tell you that they are growing faster than anywhere else in the world. For high-yield issuers, that's a nice wind to have at your back. At the same time, the relative valuations are still attractive.

The high-yield market tends to move in cycles along with the economy. Where are we in the cycle?

High yield is pretty easy to predict. As long as the economy is growing, that means that companies are doing well. Profits and revenues are rising and defaults are falling.

Our view is that growth is slowing, but it is slowing from a very rapid growth to stable growth. That means that defaults are not going to fall much from here, but they are not going to rise much, either. Fundamentals are stable right now.

Typically, when you think of domestic high-yield bond issuers, you think of troubled rust-belt manufacturers. What is the high-yield bond market saying about the state of U.S. manufacturing?

Your high-yield names tend to be more focused on capital-intensive businesses. And particularly with General Motors ( GM) and Ford ( F) being downgraded, your traditional high-yield funds have to make a large decision on what to do with the autos, because they make up about 12% of the U.S. high-yield market.

By going global, we are less focused on the U.S. autos, which have been the big loser in manufacturing. But there is a lot of manufacturing in the U.S. that can't go elsewhere. Asia clearly has a large competitive advantage due to low-cost labor, and you have seen a large shift there. But at the end of the day, certain items must be made in the U.S. due to just-in-time inventories, so manufacturing is not going away.

In terms of our portfolio, we don't own many manufacturers per se. We own Goodyear ( GT), but that's more about the shortage in the supply of the raw materials that go into tires. We own a few chemical companies as well. Ultimately, I just look to identify good companies. I don't focus so much on whether they are manufacturers.

Do you own any of the distressed auto bonds?

We own a little GM and a little Ford. But we are underweight autos in general because we really don't know how this is going to play out. I'm more comfortable with the credit companies, like GMAC, because if something happens to Ford or GM, those probably won't go bankrupt with them.

Also, as the auto manufacturers shrink, it's good for the credit companies, because they will generate more free cash flow as they reduce their portfolio of loans. So it's not that I'm enthusiastic about it, but with 10% yields with not a lot of downside, it's something I'm willing to look at.

So which sectors do you like?

One area in the U.S. that we've increased our position in is transportation bonds, particularly airlines. American and Continental ( CAL) are two that we like. And we like bonds backed by equipment like planes. You have to do a lot of homework to make sure the planes have value and that they are important to the airlines. But we see price increases going on in the airlines and a steady reduction in their labor costs. If oil cooperates, these businesses can improve substantially and you can have a real home run on these bonds.

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