Best High Yielding Bond Mutual Funds

Since the entire concept of this website is about high yielding dividend mutual funds, investors might also want to be interested in bond mutual funds that pay high dividends and hold US Corporate & Government debt. Investing in a bond mutual fund means i) you will get the services of a qualified professional fund manager that understands the business and ii) your risk levels will be diversified because bonds from different sectors of the economy will be chosen. Here is how bond mutual funds are usually diversified:

  • Bonds are issued by different levels of government or municipalities & corporations in different sectors of the economy.

  • Bonds mature on different dates, some are short term bonds while others are long term bonds (5 years or more).

  • Bonds pay different yields, Corporate bonds usually pay higher yields than Government bonds.

  • Bonds carry different levels of risk.

i) BlackRock High Yield Bond Inv (BHYAX)

The BlackRock High Yield Bond fund is a high dividend paying bond mutual fund that currently yields 6.58% and has $4.4 billion in assets under management. The fund is rated 4 Star by MorningStar and an initial $10,000 investment in May 2001 would have grown to $23,307 in May 2011. I looked at the Fund's 1st Quarter 2011 fact sheet and this is the Strategy I found. The fund invests primarily in non-investment-grade bonds with maturities of 10 years or less. The fund normally invests at least 80% in high yield bonds including convertible and preferred securities. It also invests up to 30% in non-dollar denominated bonds of issuers located outside the US. The fund is very well diversified and holds bonds in many different sectors.


ii) Goldman Sachs High Yield (GSHAX)

The Goldman Sachs High Yield Mutual fund is a bond fund that holds 80% US Corporate bonds & and 17% Foreign Corporate bonds taking advantage of high coupons. The fund currently yields a 7.32% dividend and has an initial 4.50% load charge. Since this is an actively managed fund, annual operating expenses are 1.05% of net assets and the fund has $5.1 billion in assets under management. The fund has had a stellar performance record averaging almost 7% return annually in the last 5 years & 8% in the last 10 years. An initial investment of $10,000 in May 2001 would have grown to over $21,560 in May 2011 representing a 110% gain in 10 years. Ofcourse this return is maximized through compounding & dividend re-investment. The Goldman Sachs team is dedicated to fixed-income investing & continually does research & checks on the corporate bond investments it holds. From their prospectus, here is how they minimize:

  • Credit risk by modeling our default expectations
  • Liquidity risk by limiting the size of individual holdings
  • Concentration risk by maintaining diversification among industries
  • Currency risk by hedging back to the base currency


iii) Franklin High Income (FHAIX)

The Franklin High Income fund is an initial 4.25% load charge fund that yields a 7.40% dividend and has $3.8 billion in assets under management. The fund has a stellar performance record of returning annualized 8.34% over the last 10 years. Annual operating expenses of 0.74% are also low compared to other similar bond mutual funds. The fund seeks a high level of current income, with a secondary focus on capital appreciation, by investing substantially in higher-yielding, lower-rated corporate
bonds. The fund pays monthly dividends and was incepted in December 31st, 1969 making it one of the oldest mutual funds I have seen around. Christopher J. Molumphy who is the portfolio manager has this perspective of fixed-income investing:

“Franklin High Income Fund follows a disciplined investment approach established over 30 years ago. We mainly invest in higher-yielding, lower-rated corporate bonds, issued by domestic companies. We examine specific industries and individual companies in detail, researching the critical measurements of a company’s long-term performance such as financial structure, cash flow, earnings prospects, market share and strategic positioning.”