Investors Return to High Yield Funds

The S&P U.S. Issued High Yield Corporate Bond Index had a 0.5% return for February, but that is after bottoming out at mid-month and rallying 3.7% in the final two weeks.

Matthew Fuller, a director at S&P Global Market Intelligence Leveraged Commentary & Data, said the rally was underpinned by healthier economic news, strong inflows to the investment style and a dearth of new issuance.

Neuberger Berman High Income Bond Fund (NHINX) was the most popular taxable high yield mutual fund in February. With the addition of $550 million of new money, the portfolio increased in size by 20% to $3.5 billion; the institutional share class has $2.5 billion in assets. Despite underperforming its high yield peers in 2014 and 2015, the fund's year-to-date through February gain of 0.1% was stronger than its peers' 1.2% decline.

The fund has a 5.9% 30-day SEC yield, moderately below the 6.3% for its peers. Meanwhile, relative to its peers, the fund's 48% exposure to bonds rated BB or equivalent is higher, while its 26% in bonds rated B is lower, supporting our favorable overall S&P Global Market Intelligence ranking.

T Rowe Price High Yield (PRHYX) and AB High Income Fund (AGDAX) pulled in $228 million and $180 million of new money, though the fund's size grew more modestly than those previously mentioned.

Navigator Tactical Fixed Income (NTBIX) is an alternative credit focus fund that which employs a tactical approach between high yield, Treasuries, and cash. Sean Clark, one of NTBIX's portfolio managers, believes that investors will be rewarded for moving into lower credit fixed income sectors during a rising interest rate environment as long as risk is being managed.

According to Clark, there is a big disconnect between where the economy is and where high yield is trading. The fund holds stakes in AB High Income and Lord Abbett High Yield Fund.

Meanwhile, Aberdeen Global High Income (BJBHX) experienced $405 million in outflows in February, which helped cut its asset base of $843 million by a third. The fund's 3.33% decline in the first two months follows underperformance in 2014 and 2015.

In the latest S&P Dow Jones Index Versus Active (SPIVA) scorecard, 66% of all high yield funds outperformed the Barclays High Yield index in 2015, though only 42% and 21% succeeded on a three- and five-year basis. Investors not seeking active management should look at SPDR Barclays High Yield ETF (JNK), which has a 0.40% expense ratio. JNK had $462 million of inflows in February.

Meanwhile, Nuveen High Yield Municipal Bond (NHMAX) was the most popular high yield municipal bond fund last month, pulling in $241 million of new assets. NHMAX outperformed its Lipper peer group in 2014 and 2015; its 1.13% year-to-date through February gain was fractionally ahead of its peers.