BOSTON (TheStreet) -- Investors have poured money into high-yield bond funds at a record pace this year as they seek less-risky alternatives to the volatile stock market while getting better returns than those of other fixed-income securities.Inflows into high-yield bond mutual funds this year totaled $22 billion through June 8, more than four times during the same period last year, according to EPFR Global. In 2010, inflows were $31.5 billion, shy of the record $31.8 billion in 2009.
The Metropolitan West High Yield Bond Fund ( MWHYX), with $2.3 billion in assets, gets a five-star rating from Morningstar. It carries a 7.5% yield and is up 4.5% this year, and 16.2% over the past 12 months. It has a five-year average annualized return of 9.5%. The fund is 86% U.S. corporate bonds and 7% foreign corporate bonds. It has a relatively low 34% annual portfolio turnover. Manager Jamie Farnham and his team have been in place since 2002. Morningstar analyst Miriam Sjoblom wrote in an April 21 research note that "like other high-yield bond funds, this one invests heavily in bonds rated BB and below. Bottom-up analysis lies at the heart of its process. Management attempts to limit the fund's downside risk by looking closely at asset value, cash flow and seniority in evaluating specific issues. "However, it also makes top-down adjustments based on its outlook for interest rates and the overall bond market. This flexible approach has fared well in a variety of market conditions," she said.
The Fidelity High-Income Fund ( SPHIX), with assets of $4.8 billion, gets a four-star rating from Morningstar. It has a yield of 6.9% and a total return of 4.4% this year and 17.3% over the past 12 months. It has a 10-year average annual return of 8%. It is 88% U.S. corporate bonds and 11% foreign corporate bonds. Portfolio turnover is 65%. Fred Hoff has been its manager since June 2000. Morningstar analysts say Hoff is a bottom-up bond-picker and, "rather than attempt to time the market's twists and turns, he aims to identify companies with the means to improve their balance sheets over the next two or three years."
The Janus High-Yield Fund ( JAHYX), a conservatively managed fund, gets a four-star rating from Morningstar. The $2 billion fund has a 7.06% yield, and has a total return of 4.1% this year and 18.4% over the past 12 months. Its 10-year annualized return is 7.6%. Expenses are 0.86%, and the minimum initial investment is $2,500. Its portfolio, which has an annual turnover of 91%, is made up of 88% U.S. and 11% foreign corporate bonds. Gibson Smith has been its lead manager since December 2003. Morningstar analyst Kathryn Young said in a research note that the fund is made up primarily of "bonds issued by firms that generate solid free cash flow and are improving the quality of their balance sheets. As a result, the fund's credit-quality profile rarely strays far from the category norm" and its conservative posture buoyed the fund in 2008; its 19% loss was 7 percentage points less than its typical peer's."
The Wells Fargo Advantage High Income Fund ( STHYX), which gets a three-star rating from Morningstar, has $746 million in assets. With a yield of 6.76%, it has a return of 4.8% this year and 17.3% over the past 12 months. It has a 10-year annualized return of 6.2%. Thomas Price has been its lead manager since 1998. Its portfolio is made up of 89% U.S. corporate bonds and 10% foreign corporate bonds.
The PIMCO High Yield Fund ( PHYDX) gets a three-star rating from Morningstar. The $12.5 billion fund has a yield of 6.9% and total return of 4.3% this year and 15.8% over the past 12 months. It has a 7.3% average total return over the past 10 years. It carries an expense ratio of 0.9% and has an annual portfolio turnover of 36%. The portfolio is made up of 78% U.S. corporate bonds, 13% foreign corporate, 3% mortgage obligation bonds, 2.3% foreign government bonds and 2% asset-backed bonds. Andrew Jessup has been fund manager since January 2010. Morningstar analyst Miriam Sjoblom said in an April 29 research note that the fund generally buys no bonds rated below B, and the portfolio includes "slightly higher-quality BB (rated bonds) and (it) has even been known to stash 30% or more in the investment-grade arena."