I get it. There are many moving parts when buying stocks, so it might not be for everyone. That’s why I sometimes suggest mutual funds for beginners or those looking to diversify their holdings. No need to sweep the market looking for companies to invest in. No more rebalancing your portfolio. The trading manager with years of experience and access to tools and resources will do everything for you. You only need to pick from the many high-yield income funds available.

Such funds hold various assets, including bonds, dividend stocks, certificates of deposit and commodities. Their goal is to provide a steady source of income through various economic conditions. They’re perfect for risk-averse investors and those building their retirement portfolios.

So, today, let’s look at three of the market’s most promising high-yield income funds. To get this list, I screened the market for the following criteria:

• Net expense ratio below 1.5%: The net expense ratio is the fees the investor pays after applying for discounts. The lower, the better.
• Four stars and above rating for performance and risk from Morningstar: While ratings are no assurance of future performance, Morningstar’s comprehensive rating guidelines give a good idea about the fund’s historical performance.
• Must be accessible to retail investors (retail or investor share class): Some share classes are only available for institutional investors, so I filtered for those available for individuals. These typically have lower investment requirements and fees.
• Positive YTD return

Then, I sorted the list based on the highest to lowest year-to-date (YTD) return, letting me focus only on the high performers with low expense ratios. That ensures the fees do not significantly reduce the potential return in the long run.

Fidelity Capital & Income Fund (FAGIX)

Fidelity has a long history of offering its clients some of the best funds in the industry, including the Fidelity Capital & Income Fund (NASDAQ:FAGIX). The fund focuses on a diversified high-yield bond strategy that aims to offer its investors income and capital growth through its portfolio bonds of non-investment-grade companies.

While the fund invests in debt securities, it also invests in equities such as Nvidia (NASDAQ:NVDA) and Meta Platforms (NASDAQ:META).

FAGIX had a great Q1’24 run. It returned 4.18% to investors, while the Intercontinental Exchange Bank of America (ICE BofA) U.S. High Yield Constrained Index, returned 1.51%. The performance was primarily driven by Nvidia and Meta’s recent bull run. Its current 1-year average annual return is also an impressive 12.68%.

FAGIX holds a 5-star fund and risk rating, making it a top-class investment for those looking for safe, high-yield income funds. It boasts 5.6% YTD returns and has a low 0.97% net expense ratio.

Mesirow High Yield Fund (MFHVX)

Since 1937, Mesirow has been serving clients through traditional and alternative strategies customized by its specialized teams. One of its funds captured in my screening list is its Mesirow High Yield Fund (NASDAQ:MFHVX).

MFHVX aims to provide investors with a high income while preserving their capital. The fund uses a value-focused analysis to find companies capable of generating free cash flow and outperforming in an economic cycle. The fund also capitalizes on high-yield opportunities not followed by most of its competitors and other research firms, highlighting its niche yet profitable picks.

The Mesirow High Yield Fund has a 1% net expense ratio. The fund’s specialized selection has allowed it to outperform its benchmark, the Bloomberg U.S. Corporate High Yield Index. MFHVX’s Q1FY’24 return was 3.29%, or 3.18% net, against the benchmark’s 1.47%.

The fund is rated 4 stars overall and 4 stars for risk. The fund is also up 5.37% YTD.

American Beacon Sim High Yield Opportunities Fund (SHOAX)

American Beacon Sim High Yield Opportunities Fund (NASDAQ:SHOAX) is aimed at income generation first and capital appreciation second. This is good news for investors looking for high-yield income funds. The fund has a diversified portfolio, including bonds, swaps, warrants, currency forwards, stocks and convertibles.

The fund also deploys capital in foreign issuers, like in emerging markets, and uses derivative assets to hedge risks. It allocates around 80% of its net assets to these securities and potentially buys the remaining assets in line with its fund objective.

A total of 94.4% of SHOAX’s portfolio is on fixed-income instruments, with a majority (43.4%) rated as BB by the S&P, and 67.5% of its holdings are in the United States. The fund’s annual 1-year return is currently at 12.4%, which is impressive.

Morningstar rates the fund 4 stars for risk and 5 stars overall. SHOAX has a net expense ratio of 1.13%. It also returned 5% to unitholders YTD.

On the date of publication, Rick Orford did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.