Supercharged performance

High-yield bond funds make a comeback

Korea Electric would be a solid investment-grade credit on a stand-alone basis, but because of market uncertainty, it traded at BB spreads.

But such bold bets are a double-edged sword. Both the Dreyfus and Loomis Sayles funds took a beating in 1998, returning -15.84% and -8.87% respectively, compared with the average highyield funds’ return of 0.55%.

And high-yield bonds’ fortunes could sour again if interest rates rise rapidly, causing investors to demand an even greater premium over Treasuries. That’s what happened back in 1989-90 when junk bonds lost 10% and there was a 12% default rate.

Given the turbulence of the sector, these funds should only be considered by investors willing to accept volatility in return for its potential rewards. As a result, financial planners suggest a 5% limit on junk bonds in the average retail investor’s portfolio.

TOP 5 HIGH-YIELD BOND FUNDS

Fund Name

6-Month Total Return*

1-Year Total Return

5-year Total Return

12-Month Yield

Toll-Free Numbers

Minimum Initial Investment

Dreyfus High-Yield Securities

15.52%

-10.22%

N/A

14.92%

800-373-9387

$2,500

Loomis Sayles High-Yield**

14.84

2.63

N/A

10.27

888-226-9699

3,000,000

Fidelity Capital & Income

13.10

9.59

11.50

8.68

800-544-8888

2,500

Third Avenue High-Yield

10.58

2.25

N/A

7.08

800-443-1021

1,000

MFS High-Yield Opportunities I**

9.16

-2.32

N/A

10.33

800-637-2929

3,000,000

* Ranked by cumulative total return as of June 30, 1999.
** These are Institutional FundsSource: Morningstar Inc.


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BOTTOM 5 HIGH-YIELD BOND FUNDS

Fund Name

6-Month Total Return*

1-Year Total Return

5-year Total Return