To find the best high-yield bond mutual funds, we began with the Fidelity Investments screener. Our initial list was 381 funds, including both taxable and tax-exempt municipal bond mutual funds.
We screened out all funds with lower than neutral Morningstar rankings. The remaining group included many institutional class funds with minimum initial investments of at least $100,000 to $1 million. We eliminated funds requiring initial investments over $3,000. We also screened out employee-only Class Z funds. Then we excluded funds that charge front end loads (Class A shares). And we tilted in favor of funds without 12b-1 fees, eliminating all but two. This narrowed the list to 35 funds.
We sorted the list according to 30-day yield, highest to lowest, and favored funds with yields of at least 6.00%. Only our high-yield municipal bond fund pick, PRIHX, has a lower SEC yield. But your taxable equivalent yield with that fund would likely end up higher. And we cut all funds that didn’t outperform their category average in yearly total return during at least two of the prior one, three, five or 10 year periods.
As for trailing 12-month yield, also known as dividend yield, we eliminated any fund (except for federally tax-free PRIHX) whose dividend yield was less than 5%.
The final list includes a diversified list of high-yield funds from various families. There is one federally tax-exempt fund for those in higher tax brackets. Forbes Advisor considers these the best high-yield mutual funds in terms of yields, strategy, and expense ratios.
All funds on our list are open to individual investors and can be purchased either through the fund families’ websites or on popular investment brokerage sites such as Fidelity and Interactive Brokers.