What are the best corporate bond mutual funds?
Corporate bond mutual funds purchase bonds from publicly traded businesses.
Fixed-income securities known as corporate bonds pay interest over the course of the bond’s term before returning the principal at maturity.
Because the default risk varies depending on whether the bonds are investment grade or not, the returns can vary.
Without spending the time or incurring the fees associated with buying individual bonds, investors can quickly obtain fixed income instruments through corporate bond mutual funds.
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1. The Delaware Extended Duration Bond Fund Class C (DEECX)
The Delaware Extended Duration Bond Fund Class C (DEECX), established on September 15, 1998, is run by Delaware Investments, a unit of the Macquarie Group. It is one of the best corporate bond mutual funds.
At least 80% of DEECX’s net assets are allocated to investment-grade, long-term corporate bonds. 3.4% and 3.28% of the fund’s allocation are allocated to municipal and government bonds, respectively.
Bonds held by the fund have credit ratings from Standard & Poor’s and Moody’s of BBB- and higher, respectively, or Baa3 and higher.
Among the 182 securities that DEECX owns are corporate bonds from JPMorgan Chase, Pepsi, and Duke Energy.
The fund is sensitive to changes in market interest rates because of its longer-than-average duration of 13.4 years.
With a 1.57% expense ratio and a 2019 21.76% YTD return as of April 30, 2020, Morningstar gave DEECX a two-star rating.
Those seeking exposure to rated corporate bonds who can tolerate interest rate risk and volatility and are comfortable with it prefer this fund.
2. The Fidelity Corporate Bond Fund (FCBFX)
More than 80% of the assets in the Fidelity Corporate Bond Fund are allocated to investment-grade domestic and foreign corporate bonds with interest rate risks corresponding to those of the Barclays U.S. Credit Bond Index.
Government bonds and cash are distributed among the remaining assets. Top holdings of FCBFX include securities from Morgan Stanley, Verizon, and Bank of America.
This fund, as opposed to DEECX, invests in corporate bonds with average durations of 6.9 years. Due to this, the fund’s returns are less volatile and susceptible to changes in interest rates, resulting in slightly lower returns.
FCBFX had a four-star Morningstar rating, a 0.45% expense ratio, and a 14.46% YTD return as of May 31, 2020.
This fund is best suited for investors seeking exposure to investment-grade corporate bonds with shorter durations and lower sensitivity to interest rate risk.
3. The Calvert Long-Term Income Fund Class A (CLDAX)
Calvert Long-Term Income Fund Class A invests in investment-grade corporate, governmental, and municipal bonds denominated in U.S. dollars in an effort to maximize returns. It is one of the best corporate bond mutual funds.
With a roughly 81% allocation to corporate bonds, CLDAX has a slightly higher concentration of corporate bonds than other funds. The remaining assets are split between cash and municipal bond holdings, securitized obligations (4%) and U.S. government bonds (8.3%).
One U.S. government bond, with a maturity date of 2045, represents nearly 16% of the assets of the fund.
In addition to having a 0.92% expense ratio and a 2019 YTD return of 20.76%, CLDAX had a two-star Morningstar rating as of April 30, 2020.
The fund is best suited for investors looking to reduce their default risk by holding U.S. government bonds.
4. The Federated Bond Fund Class F Shares (ISHIX)
Federated Bond Fund Class F Shares invests in corporate bonds that are both investment grade and non-investment grade. It is one of the best corporate bond mutual funds.
Corporate bonds make up 75% of the fund’s assets, while government obligations make up less than 5%.
ISHIX’s portfolio is made up of 24% high-yield bonds and 75% investment-grade bonds. Due to the fund’s exposure to speculative-grade bonds, its returns are more vulnerable to default risk, but it can outperform its peers in favorable market conditions.
In addition to a 0.86% expense ratio and a 13.85% YTD return as of May 5, 2020, ISHIX had a three-star Morningstar rating.
ISHIX is ideal for investors seeking exposure to speculative and investment-grade bonds that have the potential to produce high returns in a favorable environment for the bond market.
5. The Lord Abbett Income A (LAGVX)
The Lord Abbett Income A mutual fund makes investments in both investment-grade and high-yield corporate bonds, but places a stronger emphasis on bonds that fall closer to junk status. It is one of the best corporate bond mutual funds.
A little over 15% of the fund’s holdings are securitized fixed income instruments, and about 68% of its holdings are corporate bonds.
On May 31, 2020, LAGVX had a Morningstar three-star rating, a 0.77% expense ratio, and a 2019 YTD return of 12.92%.
LAGVX is best suited for investors looking to diversify their portfolios with investment-grade high-yield bonds with BBB credit quality ratings.
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