500 / 772
18
Prices are down and yields are up. A high-yield sell-
off that started in June has gained steam as some
watchers say that defaults will double in
2016
mainly
because of problems in the energy sector. Still,
higher yields are making high-yield bond funds look
more appealing, provided defaults don’t get too
prevalent, of course.
Let’s examine the record of six of our highest-rated
funds in the category. It’s encouraging that five
of the six have strong five-year records and one is
merely middling.
Fidelity High Income
SPHIX
is our one middling per-
former in the group. We give it a Morningstar
Analyst Rating of Gold in part for its blend of aggres-
sion and caution. The fund’s five-year returns
aren’t impressive. That’s mostly due to a historically
cautious stance from Fred Hoff, but its aggressive
side has hurt more recently. While the fund has had
an overall credit profile less risky than its peers’,
Hoff dialed up the fund’s
CCC
exposure in
2015
. The
timing was poor, as that strata of the high-yield
market was shellacked. Thus, the fund has lost a dis-
appointing
4
.
2%
from June through October. Hoff’s
long record is strong, though, so we’re keeping the
fund at Gold.
T. Rowe Price High-Yield
PRHYX
has impressed
to the point that we recently raised its rating to Gold
from Silver. The fund’s five-year returns are in
the category’s top quartile. Mark Vaselkiv is an experi-
enced manager who has done a fine job navigating
through different markets. A slight overweighting to
CCC
s has led to a
4
.
3%
loss since June, however.
Fidelity Capital & Income
FAGIX
is on the more ag-
gressive side of the category. That’s why Mark
Notkin’s fund sports a Silver rather than Gold rating.
The fund’s long-term returns are top-decile, but
they have come with added risk that has singed the
fund from time to time. It is down
3
.
5%
since June
because of a slight overweighting in
CCC
s. On the
plus side, Notkin has remained wary of energy.
Vanguard High-Yield Corporate
VWEHX
has per-
formed just as expected given its bias to the
higher-quality end of high yield. The fund’s five-year
returns are in the category’s best quintile, and
that owes a fair amount to losing less in downturns
such as the current one. The fund is down a
modest
1
.
4%
since June
1
. If you’re wary that default
growth could get out of hand, this is a better bet
than the rest of the field.
Eaton Vance Income Fund of Boston
EVIBX
boasts
top-quartile five-year returns and a surprisingly
small
2
.
4%
loss since June. The fund has its share of
CCC
rated bonds, but it has kept mainly to short-
term paper, which has held up better than longer-term
CCC
debt. Since the fund got burned in the credit
crunch of
2008
, it has been more defensive. Its navi-
gation of the latest market sell-off is a positive sign
for those efforts.
Bronze-rated
Fairholme Focused Income
FOCIX
is actually still in the black for the year. Bruce Berkow-
itz’s concentrated portfolio means that performance
isn’t really about any sector or macro positioning so
much as about the health of a few big holdings.
It’s worth noting that
Third Avenue Focused Credit
TFCVX
is currently illustrating the flipside of focus
as it is getting crushed for the second year in a row. But
everything is ducky at Fairholme Focused, where
enormous bets on
Sears
SHLD
,
Imperial Metals
IPMLF
,
Fannie Mae
FNMA
, plus a big cash stake have
helped it weather the storm. The fund was near the bot-
tom of the pile in
2014
, so I’d say it is probably
the riskiest of the lot even after its fine performance
so far in
2015
.
K
High-Yield Funds in a Challenging Year
Tracking Morningstar Analyst Ratings
|
Russel Kinnel
What Are Morningstar
Analyst Ratings?
Our ratings are chosen for long-
term success. Analysts assess
a fund’s competitive advantages
by analyzing people, process,
parent, performance, and price.
They do rigorous analysis and
then submit their ratings to a
committee that vets their work
for thoroughness and consistency.