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Mutual Funds/High Yield Fixed Income Mutual Funds

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Question
Hello:

What would cause a high-yield-fixed-income mutual fund, that primarily invests in bonds, to increase or decrease in value?

I think rising interest rates, but I'm not sure what this indicates.

I thank you for your reply.

Answer
High yield (junk) bonds tend to lose value when the economy looks bad and tend to gain value when the economy looks good. Reason:When the economy improves, the companies issuing the bonds seem likely to get stronger. High-yield bonds thus  tend to act like stocks.
  They may also lose value because of unusually great demand for them--as when the economy is improving.
   Rising interest rates don't hurt them much, especially if the rise is fairly modest.
   Some investors argue that instead of investing in junk bonds, people should just invest in stocks.But there seems to be a place in most portfolios for some junk bonds.
   I hope this answers your question.

WB

Mutual Funds

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Warren Boroson

Expertise

Author of "Keys to Investing in Mutual Funds" (Barrons), "Ultimate Mutual Fund Guide" (Probus), "How to Pick Stocks Like Warren Buffett" (JKLasser), and "The Reverse Mortgage Advantage" (McGraw-Hill). Former financial columnist for Gannett News Service.

Experience

Author of 20 books; winner of 1996 Personal Finance award from Investment Company Institute and Washington University. Formerly on staffs of Money and Sylvia Porter's Magazine. Had a radio program (on WEVD) about mutual funds and a newsletter, FundDigest.

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