High Yield Bond Funds: Strategic Options to Balance Returns and Portfolio Risk

For individual investors seeking exposure to fixed-income securities beyond investment-grade ratings, high yield bond funds represent a compelling alternative to direct bond purchases. These funds offer a structured approach to navigating the non-investment-grade debt market, commonly known as the junk bond segment. The primary advantage lies not just in superior yield potential, but in the diversification benefits that come from holding a broad basket of securities across multiple issuers and sectors.

Why High Yield Bonds Deserve Your Attention

The conventional wisdom about investing focuses heavily on safety and quality. However, high yield bonds operate under different dynamics. Because these bonds carry higher coupon payments than their investment-grade counterparts, they demonstrate greater resilience against interest rate fluctuations. When rates rise, investment-grade bonds tend to suffer more significant price declines, while high yield instruments maintain relatively better stability due to their income-heavy structure. Additionally, the diversified holdings within fund structures mitigate the idiosyncratic risk associated with any single issuer, making mutual funds more suitable for retail investors than direct bond purchases.

Comparing Three Top-Performing High Yield Bond Funds

The investment landscape includes numerous high yield bond funds, but several have distinguished themselves through consistent performance and strategic positioning. According to Zacks Investment Research, three funds have earned the Zacks Mutual Fund Rank #1 designation, indicating expectations of outperformance relative to peers. These funds—PIMCO High Yield Spectrum, Nuveen High Yield Income Fund, and Manning & Napier High Yield Bond Series—each demonstrate distinct methodologies for capturing yield while managing downside risk.

PIMCO High Yield Spectrum: Comprehensive Coverage Through Derivatives

PIMCO High Yield Spectrum (PHSAX) allocates the majority of its net assets to below-investment-grade instruments, extending beyond traditional bonds to include convertible securities, warrants, forwards, and derivative instruments such as swap agreements. This expansive approach provides portfolio managers with additional tools for yield enhancement and risk management. As of September 2025, the fund maintained 71.1% of net assets in miscellaneous bonds, while the remainder represented alternative high yield instruments. The fund’s three-year annualized return reached 10.1%, positioning it competitively within its peer group. PHSAX advisors leverage credit default swaps and total return swaps to fine-tune portfolio exposures, making it suitable for investors comfortable with derivative strategies.

Nuveen High Yield Income Fund: Flexibility Across Credit Quality

Nuveen High Yield Income Fund (NCOAX) emphasizes breadth across borrowing entities and geographies. The fund invests in below-investment-grade debt instruments issued by both domestic and foreign corporations, accessing both exchange-listed securities and over-the-counter instruments. Notably, NCOAX management maintains flexibility to include unrated bonds, which the portfolio managers assess as economically comparable to rated securities. This pragmatic approach expands opportunity set without sacrificing credit quality standards. The fund achieved a three-year annualized return of 9.9%, with an expense ratio of 1%. For investors seeking global diversification within high yield exposure, NCOAX offers efficient market access.

Manning & Napier High Yield Bond Series: Diverse Asset Integration

Manning & Napier High Yield Bond Series (MNHYX) takes a holistic approach to high yield investment by incorporating multiple asset classes alongside traditional bonds. The fund’s portfolio encompasses derivative instruments, exchange-traded funds, and bank loans—all selected for economic characteristics aligned with its high yield objective. Beyond non-investment-grade securities, the fund retains flexibility to invest in U.S. dollar-denominated fixed-income instruments from both U.S. and foreign corporations, including emerging market issuers. MNHYX delivered a three-year annualized return of 9.8%, with Scott Friedman managing the fund since March 2021. This multi-asset framework appeals to investors seeking comprehensive high yield exposure rather than single-instrument focus.

Selecting the Right High Yield Bond Fund for Your Portfolio

The choice among these three high yield bond funds depends on individual risk tolerance, investment horizon, and preference for portfolio complexity. PHSAX offers the highest recent returns through active derivative positioning but requires comfort with synthetic instruments. NCOAX emphasizes flexibility and global diversification at moderate cost. MNHYX provides multi-asset exposure with established management continuity. Each maintains the Zacks Rank #1 designation, reflecting fundamental strength in security selection and risk management across the high yield bond category. Investors evaluating these options should consider not only the annualized returns but also the underlying investment philosophy and whether the fund’s approach aligns with broader portfolio objectives.