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5 Mutual Funds with Over 5% Yield to Beat Market Uncertainty

Recent tensions in global markets have pushed investors toward safe haven investments such as Treasury notes. This concerns terror attacks in Turkey and Germany. An increase in demand of treasury notes raised their prices and eventually weighed on their yields. Treasury yields registered their worst decline since Aug 29 on Dec 19.

The Fed played its part in flaring up uncertainty when it stated that the key rate will be increased at a quicker pace in 2017. Given the recent declines in yields in Treasury notes, dividend seeking investors might think of focusing on investing in mutual funds with strong yields.

Fed Likely to Raise Rates at Faster Pace in 2017

After the two-day Federal Open Market Committee (FOMC) policy meeting, the Fed increased the interest rate from a range of 0.25–0.5% to 0.5–0.75% “in view of realized and expected labor market conditions and inflation.” This was the first rate hike in 2016 and the second in last 10 years. The FOMC also said “economic activity has been expanding at a moderate pace since mid-year” backed by strong job growth and inflation levels that “have moved up considerably but still are low.”

Additionally, Fed Chairwoman Janet Yellen said that rise in rates “should be understood as a reflection of confidence in economic progress” and Fed’s judgment that “that progress will continue.” Further, the Fed expects three rate increases next year, higher than the previously projected two rate hikes in the September meeting. This statement caught investors by surprise and weighed on broader markets.

Terror Attacks in Ankara and Berlin

Andrei Karlov, the Russian ambassador to Turkey was shot dead in a photography exhibition gallery in Ankara. Officials from Turkey and Russia condemned this attack, while Russia labeled this as an act of terrorism. Moreover, after the attack on the Russian ambassador, another man was detained in Ankara following gun shots outside the U.S. embassy.

Further, a truck rammed into a Christmas market in Berlin killing around 12 and injuring nearly 48 people. German Chancellor Angela Merkel said that this incident could be assumed as “a terrorist attack." The U.S. President-elect Donald Trump condemned both the attacks and said “these terrorists and their networks must be eradicated” to restore peace in the world. Back-to-back acts of violence increased political uncertainty in global markets.

The yield on the 10-year Treasury note fell to 2.54% on Dec 19 since Aug 29 following a rapid growth in its demand. Additionally, yield on the 20-year Treasury note and 30-year Treasury note declined to 1.23% and 3.12%, respectively since Aug 29.

Buy 5 Mutual Funds with High Yields

This backdrop calls for investors’ attention to five mutual funds that have yields above 5% and also boast a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have impressive year-to-date (YTD), one-year and three-year annualized returns. They also have minimum initial investment within $5000 and possess low expense ratios.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

Oppenheimer Rochester Fund Municipals A RMUNX invests bulk of its assets in securities whose income is free from federal income tax as well as fund’s state income tax. RMUNX seeks tax-exempted income. The fund also invests around one-fourth of its assets in “junk bonds.”

RMUNX has an annual expense ratio of 0.73%, lower than the category average of 0.96%. The fund has YTD, one-year and three-year annualized returns of 5.1%, 5.7% and 7.1%, respectively. Annual dividend yield of the fund is 5.6%.

American Century High-Yield Investor ABHIX seeks growth of income and capital. ABHIX normally invests the major portion of its assets in various debt instruments, including high-yield bonds. The fund also invests nearly 40% of its assets in fixed-income debt obligations of foreign companies.

ABHIX has an annual expense ratio of 0.85%, lower than the category average of 1.06%. The fund has YTD, one-year and three-year annualized returns of 13.4%, 14.7% and 2.9%, respectively. Annual dividend yield of the fund is 5%.

Nuveen Symphony Credit Opportunities A NCOAX seeks growth of income and capital. NCOAX invests huge portion of its assets in loans, convertible securities and bonds. The fund invests in debt securities issued by both domestic and foreign companies.

NCOAX has an annual expense ratio of 0.85%, lower than the category average of 1.06%. The fund has YTD, one-year and three-year annualized returns of 19.8%, 20.5% and 3.1%, respectively. Annual dividend yield of the fund is 5.4%.

Fidelity New Markets Income FNMIX invests a lion’s share of its assets in securities of issuers in emerging markets and other investments that are tied economically to such a region. FNMIX seeks appreciation of capital and income.

FNMIX has an annual expense ratio of 0.84%, lower than the category average of 1.13%. The fund has YTD, one-year and three-year annualized returns of 13.5%, 13.9% and 5.9%, respectively. Annual dividend yield of the fund is 5.1%.

USAA High Income USHYX seeks to provide total return through current income and capital growth. It focuses on investing in dollar denominated non-investment-grade debt securities. Along with domestic securities, it may also invest without limit in dollar-denominated foreign securities.

USHYX has an annual expense ratio of 0.82%, lower than the category average of 1.06%. The fund has YTD, one-year and three-year annualized returns of 17.3%, 18.3% and 3.7%, respectively. Annual dividend yield of the fund is 5.6%.

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