Many emerging markets funds focus on sovereign bonds that are dominated in dollars because those are seen as safest. But Payden takes a broader approach, holding a mix of government and corporate issues, including bonds that are denominated in dollars as well as local currencies. The corporate issues can come with more risk, but they deliver extra yields. Payden currently yields 6%, compared to an average yield of 4.5% for peers.

Ceva favors bonds from countries with solid finances. The fund is currently overweight Brazil, a country with a booming economy and strong balance sheet. Local-currency bonds in the country yield more than 10%. Favorite holdings include bonds from Vale ( VALE), a dominant mining company that produces iron ore and coal. The fund is also overweight Russia, including issues from energy companies. "Oil prices are going to remain high," says Ceva. "The situation in the Middle East is not going to be resolved any time soon."

Payden sometimes buys shakier bonds when steep yields compensate for extra risks. Ceva holds government bonds from Venezuela. With the government of Hugo Chavez increasing its control of the economy, the outlook for the oil-producing country is troubled. But some sovereign bonds yield more than 12%. "The bonds are priced as if there is a real risk of default, and the country has no history of defaulting," says Ceva.

Sometimes Payden owns a country's currency but not the bonds. The fund currently has currencies from Singapore, Malaysia and the Philippines. Because those countries are growing, Ceva figures that the currencies will appreciate against the dollar. But the fund is staying away from the bonds of most Asian countries because she worries that interest rates will rise, a process that will hurt bond prices.

TheStreet awarded "Best Mutual Funds and ETFs 2011" to 111 funds, half of which were winners in their investment category and half runners-up. The criteria are as follows: Mutual funds must have had a three-year history as of Dec. 31 and been open to new client investments, with the minimum not exceeding $100,000. Closed-end funds and ETFs must have had a one-year track record. The rating is based equally on performance and risk. Emphasis is given to longer-term performance, based on total returns minus expenses. Risk measures include standard deviation, size of peak-to-trough (drawdown factor) and duration.

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Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.

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