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3 High-Yield Bond Funds to Buy for Impressive Returns

High-yield bonds behave more like stocks than investment-grade bonds. These bonds have significant holdings in smaller companies, which are considered to have a weaker financial condition but benefit as the economy moves north.

Though high-yield bonds are more exposed to credit risk, these have less exposure to interest rate risk, making them a differentiated source of return. Despite the headwinds faced during Fed’s tightening of monetary policy, with indications coming in from the Fed that it might slow down its steep rate of hikes, these bonds are poised to grow.

Below, we share with you three top-ranked high-yield bond mutual funds, namely Fidelity Advisor High Income Advantage Fund - Class M FAHYX, American Funds High-Income Trust A AHITX and Buffalo High Yield Fund BUFHX. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of funds.

Fidelity Advisor High Income Advantage Fund - Class M seeks a high level of income along with capital appreciation by investing most of its net assets in income-producing debt securities, preferred stocks, and convertible securities, with emphasis on lower-quality debt securities along with non-income-producing securities, including defaulted securities and common stocks. FAHYX advisors choose to invest in stocks based on fundamental analysis factors such as financial condition, industry position as well as market and economic conditions.

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Fidelity Advisor High Income Advantage Fund - Class M has three-year annualized returns of 4.1%. As of the end of Jul 2022, FAHYX held 49.0% of its net assets in miscellaneous bonds.

American Funds High-Income Trust A invests most of its assets in higher-yielding and generally lower-quality debt securities, including corporate loan obligations. AHITX advisors also invest a small portion of its assets in securities of foreign issuers.

American Funds High-Income Trust A has three-year annualized returns of 2.6%. AHITX has an expense ratio of 0.68% compared with the category average of 0.95%.

Buffalo High Yield Fund invests most of its net assets in higher-yielding, higher-risk debt securities rated below investment grade by the major rating agencies, commonly known as "junk bonds" preferably with an intermediate maturity period. BUFHX advisors may also invest in investment-grade debt securities, U.S. Treasury Securities, money market funds, and equity investments, including dividend-paying stocks, convertible stocks and preferred stocks.

Buffalo High Yield Fund has three-year annualized returns of 3.2%. Paul Dlugosch has been the fund manager of BUFHX since July 2007.

To view the Zacks Rank and the past performance of all high-yield bond funds, investors can click here to see the complete list of high-yield bond funds.

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