What if the “safe” income choice in your portfolio is quietly paying you less than a well-screened group of high-yield ETFs—without taking on wild fees or exotic leverage?
If you’re serious about income investing, you’ve probably noticed how fast yields can change. One month looks steady. The next month, your distribution yield slips, or the market reminds you that higher income often comes with higher risk.
This U.S.-focused listicle breaks down seven High-Yield Funds many income investors track because they clear common “income-first” screens. To make the list, each fund had to show a distribution yield of at least 6%, avoid leveraged or inverse strategies, keep an expense ratio under 0.5%, and post a positive total return over the last three years.
Using Morningstar data as of June 27, 2025, the lineup includes SPDR Portfolio High Yield Bond ETF (SPHY) at a 7.7% yield with a 0.05% expense ratio, plus Global X MLP ETF (MLPA) at 7.5% and SPDR Bloomberg Short Term High Yield Bond ETF (SJNK) at 7.4%. You’ll also see iShares High Yield Systematic Bond ETF (HYDB) at 7.0%, Fidelity Enhanced High Yield ETF (FDHY) at 6.7%, iShares iBonds 2025 Term High Yield & Income ETF (IBHE) at 6.3%, and iShares Fallen Angels USD Bond ETF (FALN) at 6.3%.
These aren’t automatically the best high-yield funds for every goal, but they’re widely followed for a reason: they aim to turn market risk into possible passive income while keeping costs in check. Yet, yield isn’t the same as safety, and today’s payout can look different next year.
Past performance is no guarantee of future results. This article is for informational purposes only and is not personalized investment, legal, or tax advice.
Key Takeaways
- You can screen high-yield ETFs by distribution yield, fees, and basic guardrails like “no leverage.”
- All seven High-Yield Funds listed show yields of 6% or more, based on Morningstar data as of June 27, 2025.
- Expense ratios matter, because high fees can erase income even when the yield looks strong.
- Bond and credit exposure drive much of the risk behind a high distribution yield.
- “Best high-yield funds” depends on your timeline, taxes, and how much price swing you can handle.
- Income investing works best when you focus on sustainability, not just the biggest headline payout.
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Understanding High-Yield Funds and Their Appeal to Income Investors
High-yield funds might seem like a good choice if you want more money from your investments. They aim for higher payouts by focusing on income-generating assets. But, this often means taking on more risk.
It’s important to understand what drives the high payouts and what might cause them to drop. The difference between yield and total return is key. A high payout doesn’t always mean the fund’s value is going up.
What Makes a Fund High-Yield
A fund is called “high-yield” if it aims for payouts that are higher than the average. Many high-yield funds focus on stocks that pay dividends or bonds with lower credit ratings.
High-yield fixed income funds get their income from bonds with lower credit ratings. A high-yield bond ETF trades like a stock but its price moves with bond prices. This can drop when interest rates rise and go up when rates fall.
The Balance Between Risk and Reward in Income Investing
The higher payouts come with a price. Junk bonds, for example, are riskier than bonds from stronger companies. This risk is higher when the economy slows down.
In tough times, high-yield funds can lose value quickly. You might lose both income and the principal you invested. Stock-based income funds can be even riskier because stock prices can change fast.
So, it’s important to look at yield vs total return. If a fund pays a lot but its value keeps falling, your long-term gains might suffer, even with regular income.
Key Factors to Consider Before Investing
- Holdings and strategy: Check if the fund focuses on bonds, dividend stocks, preferred stocks, or a specific sector. Each type has different risks and volatility.
- Distribution level: Be cautious of very high yields, like over 8%. They might signal higher risk or an unstable strategy.
- Distribution durability: Look out for payouts that seem too good to be true. They might be based on risky practices that won’t last.
- Track record: Choose funds with a long history. Compare the payout to the average return. If payouts are always higher than returns, the fund’s value might drop.
| What you check | What you’re looking for | Why it matters for yield vs total return |
|---|---|---|
| Portfolio mix | Clear exposure (bonds vs stocks vs preferreds) and how concentrated it is | Concentration can raise drawdowns, even if the income rate looks strong |
| Credit quality | How much sits in lower-rated debt for high-yield fixed income funds | Lower quality can boost income but raises default risk and price volatility |
| Rate sensitivity | Duration and how the fund reacts when interest rates move | Rate spikes can pressure bond-heavy high-yield funds and reduce total return |
| Distribution pattern | Stable payments vs frequent changes, and whether cuts happened before | Unstable payouts can signal weaker cash generation and future NAV pressure |
| Price vs payout | Whether the share price holds up while distributions are paid | A high yield with a falling price can leave you behind over time |
Top Dividend ETFs Delivering Exceptional Yields
If you’re looking for income without tracking many stocks, dividend-focused ETFs are a good choice. They bundle established payers into one basket. This way, you can aim for steady income while diversifying your portfolio.
These funds can also help you avoid overreacting to one company’s bad quarter. Your dividend ETF yield moves with the market. But, broad exposure makes the ride feel steadier.
Vanguard High Dividend Yield Index Fund ETF Overview
Vanguard High Dividend Yield Index Fund ETF (VYM) is perfect for those who want simplicity. Its yield is about 2.4%, more than double the S&P 500 average of 1.1%.
Costs are low, making VYM a top choice. The expense ratio is 0.06%, so a $100,000 investment costs about $60 per year in fees.
VYM offers broad diversification, holding 560+ stocks. Financials, technology, healthcare, and industrials make up about 61% of the fund. This gives you a wide spread across the U.S. economy.
Top holdings include ExxonMobil, JPMorgan Chase, and Procter & Gamble. The 5-year average beta of 0.76 suggests a lower-volatility profile than the broader market.
In a recent 12-month snapshot, VYM posted a +12% price return versus the S&P 500 at +13.8%. On a total return basis, it came in at +14.2% versus +14.8% for the index.
Invesco S&P 500 Pure Value ETF Performance Analysis
Invesco S&P 500 Pure Value ETF (RPV) focuses on income differently. Its yield is about 2.5%, focusing on deep value stocks inside the S&P 500.
This value tilt can appeal when worried about drawdowns. Cheaper stocks may have less downside risk in a downturn. As of Jan. 16, the fund held 123 positions.
Top holdings include Ford Motor Company, Humana, and Tyson Foods. RPV also limits concentration, with the largest holding around 2%. This helps keep single-stock exposure in check.
Sector emphasis is a key part of the story: financials, healthcare, consumer staples, and materials are about 64% of holdings. Tech sits under 2%. Over the past 12 months cited, RPV delivered +15.5% in price return and +17.4% in total return.
Comparing Expense Ratios and Portfolio Diversification
Both funds can fit inside a high-yield ETFs shortlist, but they solve different problems. VYM leans on scale, broad coverage, and low expense ratio ETFs pricing. RPV leans on a value screen and defensive sector weightings, with a higher fee.
| Feature | Vanguard VYM | Invesco RPV |
|---|---|---|
| Dividend ETF yield | 2.4% (more than double the S&P 500 average of 1.1%) | 2.5% (value-tilted approach) |
| Expense ratio | 0.06% (about $60/year per $100,000) | 0.35% (higher cost for a screened strategy) |
| Holdings count | 560+ stocks | 123 holdings (as of Jan. 16) |
| Portfolio diversification profile | Broad mix; financials, technology, healthcare, industrials = 61% | More concentrated sectors; financials, healthcare, consumer staples, materials = 64%; tech < 2% |
| Notable holdings examples | ExxonMobil, JPMorgan Chase, Procter & Gamble | Ford Motor Company, Humana, Tyson Foods |
| Risk and sensitivity notes | 5-year average beta 0.76 | Largest holding about 2%, helping limit single-stock exposure |
| Recent 12-month snapshot | +12% price return; +14.2% total return | +15.5% price return; +17.4% total return |
When comparing high-yield dividend funds, fees and fit matter as much as yield. VYM offers broad coverage with a low cost. This supports portfolio diversification.
If you prefer a value tilt and less exposure to tech-heavy leadership, RPV’s design may match your comfort level. Even with a higher expense ratio, it can be a good choice. Treating the dividend ETF yield as only one input can help you keep your process steady.
High-Yield Bond Funds Worth Your Attention
High-yield bond funds can offer more income. They invest in corporate bonds with lower credit ratings. This means higher payouts but also more risk when the economy is unstable.
Before investing, consider what you might earn and lose. Junk bonds come from weaker companies and default more often. This can lead to quick losses, either through price drops or missed payments.
SPDR Portfolio High Yield Bond ETF Features
SPDR Portfolio High Yield Bond ETF (SPHY) is a popular choice. It has a low fee and a high yield. As of June 27, 2025, it offered a 7.7% yield and a 0.05% expense ratio.
SPHY’s yield is attractive, but it’s important to look at the bond quality and sector mix. This helps understand the fund’s overall health.
| Fund | Approach | Yield (June 27, 2025) | Expense Ratio | What You’re Managing |
|---|---|---|---|---|
| SPDR Portfolio High Yield Bond ETF (SPHY) | Broad high yield exposure | 7.7% | 0.05% | Income focus with meaningful credit risk |
| SPDR Bloomberg Short Term High Yield Bond ETF (SJNK) | Short-maturity high yield exposure | 7.4% | 0.40% | Lower interest-rate sensitivity versus longer-duration funds |
Understanding Junk Bonds and Credit Risk
High-yield bonds come from weaker companies. They default more often, which means higher risk of losing income and principal. They’re also more sensitive to economic downturns.
Two terms you’ll see in reports are important. Duration shows how much a bond portfolio might change with interest rate moves. Option-adjusted spread (OAS) compares yield to U.S. Treasury rates, helping judge extra compensation for risk.
Short-Term vs Long-Term Bond Fund Strategies
Short-term high-yield bond ETFs can reduce interest-rate risk. SJNK, for example, has a 7.4% yield and a 0.40% expense ratio as of June 27, 2025. Short maturities mean less sensitivity to rate changes.
Bond ETFs tend to fall with rising rates and rise with falling rates. Duration plays a big role in these moves. When comparing, consider yield, duration, OAS, and your comfort with credit risk.
Specialized Income Funds for Strategic Investors
Looking for more than just a basic income mix? Specialized income funds can help you aim for a specific goal. They focus on sectors, bond terms, or strict rules. But, you might gain income at the cost of taking on more risks.
It’s important to treat these funds differently than broad high-yield ETFs or diversified mutual funds. Before buying, understand what drives the income, the portfolio’s lean, and how it might act in tough markets.
The options below meet a simple screen many income investors like: a distribution above 6% and an expense ratio below 0.5%. Each fund has its own reason for being chosen, so your choice depends on your time horizon and risk comfort.
| Fund | Focus | Yield | Expense Ratio | What Makes It Distinct | Primary Risk to Watch |
|---|---|---|---|---|---|
| Global X MLP ETF (MLPA) | MLPs | 7.5% | 0.45% | Built to capture MLP ETF yield from a single, income-heavy corner of the market | Narrow diversification; sector shocks can hit most holdings at once |
| iShares iBonds 2025 Term High Yield & Income ETF (IBHE) | High-yield bonds with a defined term | 6.3% | 0.35% | A term high-yield bond ETF structure can match a more specific timeline | Credit risk and reinvestment planning once the term nears its end |
| Fidelity Enhanced High Yield ETF (FDHY) | High-yield bonds | 6.7% | 0.35% | Another choice in high-yield ETFs if you want a straightforward bond-heavy income sleeve | Credit spreads and default risk in weaker parts of the bond market |
| iShares High Yield Systematic Bond ETF (HYDB) | High-yield bonds using a rules-based process | 7.0% | 0.35% | Systematic exposure to high yield, with costs that stay competitive | Rule-driven positioning can lag when leadership shifts fast |
A practical rule is know what you own. If your holding is tied to one industry or one maturity window, your results can hinge on a small set of drivers. In many cases, a broadly diversified approach has less risk than a narrow, one-industry fund, even when the yield looks tempting.
If you already own core high-yield mutual funds, you might use specialized income funds as a smaller “satellite” position. This keeps your income plan flexible while managing concentration, credit exposure, and timeline risk in a way that fits your portfolio.
Evaluating Fund Sustainability and Distribution Rates
Spotting the best high-yield funds means looking beyond the initial numbers. A high distribution rate is good if it matches the portfolio’s earnings in different markets.
When comparing total return vs yield, you see if income grows wealth or just returns your principal. This focus helps avoid chasing unsustainable yields.
Assessing Dividend Coverage and Payout Ratios
Start with coverage. If the holdings generate steady cash flow, the fund can support its payout through ups and downs.
Next, examine the payout ratio of the underlying stocks or bond portfolio. A lower ratio means more room for adjustments, while a high ratio might lead to cuts.
- Cash flow strength: steady free cash flow is easier to distribute than paper gains.
- Business durability: stable demand and pricing power help defend income.
- Balance sheet health: heavy debt can crowd out future distributions.
Long-Term Track Records and Performance Metrics
A long track record is key. It shows how a strategy performs in both good and bad times. Compare the fund’s distribution rate to its long-term results to ensure payments are supported by performance.
If the fund pays out more than it earns, its price might quietly drop. That’s why checking total return vs yield is important when searching for top high-yield funds.
| What you check | What it can tell you | What to compare it against |
|---|---|---|
| 5–10 year annualized performance | Whether the strategy has held up across market cycles | Peer group funds with similar holdings and fees |
| Distribution rate vs annualized return | Whether payouts appear supported or may be eroding net asset value | The same time period’s total return vs yield view |
| Fees and trading frictions | How much of the portfolio’s income is lost before you receive it | Index figures, as index returns are not fund returns |
| Consistency of distributions | How stable payments are when markets get volatile | Changes in income sources, such as dividends, coupons, or option premiums |
Warning Signs of Unsustainable Yields
Be cautious of yields over 8%, and watch the share price. A high yield might signal expected income drops, not a free ride.
Also, consider how the fund generates income. Option-based boosts can disappear when premiums fall. Debt-boosted payouts can lead to sharp cuts, affecting sustainable yield and expectations.
Risk Management in High-Yield Investment Strategies
Investing in high-yield funds is not just about the returns. The market can change quickly, so it’s important to have a plan for managing risks before you invest.
First, consider interest-rate risk. Many funds with a lot of bonds can drop in value when interest rates go up. A good way to understand this is by looking at duration. Funds with longer durations tend to move more when rates change.
Then, there’s credit risk. Funds that invest in bonds with lower credit ratings face a higher risk of default. Investors often look at OAS (option-adjusted spread) to see if the extra return is worth the risk.
Liquidity risk is another factor. In times of market stress, it can be hard to sell shares at a fair price. This is because bid-ask spreads widen, making it tough to exit quickly.
Market swings also play a role. Stock income funds and high-yield bonds can fall sharply during downturns. It’s also important to watch how concentrated a fund is. For example, some funds focus on specific sectors, making them more vulnerable to changes in that area.
- Check duration to keep interest-rate risk in line with your time horizon.
- Scan credit quality and default history to stay realistic about credit risk.
- Watch trading metrics like volume and spreads to limit liquidity risk.
- Review holdings for sector concentration, foreign exposure, and non-diversification.
- Read the prospectus for objectives, risks, charges, and expenses; investing involves substantial risk and high volatility, including possible loss of principal.
| Risk bucket | What you’ll notice in real time | What to check before you buy | Practical move you can take |
|---|---|---|---|
| interest-rate risk | Price dips when Treasury yields climb | Duration, maturity profile, rate sensitivity notes | Favor shorter duration if you may need the money soon |
| credit risk | Spreads widen; downgrades and defaults drive drawdowns | OAS, quality mix, issuer concentration, recovery history | Limit lower-rated exposure and avoid overloading one sector |
| liquidity risk | Wider bid-ask spreads; premium-discount swings | Average trading volume, spreads, creation/redemption activity | Use limit orders and avoid trading in the first and last minutes |
| Market and concentration risk | Correlated drops across holdings during sell-offs | Top holdings, sector weights, foreign/European issuer risks, non-diversification flags | Blend fund types and cap any single theme at a level you can tolerate |
| Portfolio mechanics and ETF frictions | Tracking gaps and unexpected volatility around events | Index tracking, trading issues, rebalancing schedule | Compare tracking difference and keep expectations grounded |
By using this checklist, you can manage risks in high-yield funds better. It helps you set limits on interest-rate risk, liquidity risk, and credit risk.
Building a Diversified Income Portfolio
Building a diversified income portfolio is more than just looking for big payouts. It’s about spreading out where your money comes from. This way, one bad period won’t ruin everything. High-yield funds and ETFs can help, but it’s all about how you mix things up.
Using a fund can make sense because one bond can fail, even if it might recover later. A mix of bonds can soften the blow from any one failure. This way, you don’t lose out on yield. The high yield diversification guide shows why getting 100+ bonds on your own is tough.
Sector Allocation and Geographic Diversification
Spreading out your investments by sector helps avoid relying too much on one area. Even funds labeled as “dividend” can make different bets. So, it’s important to check what’s inside before you invest.
| Income Equity ETF | Largest Sector Exposures (Examples) | Concentration Snapshot | What It Means for Your Risk |
|---|---|---|---|
| Vanguard High Dividend Yield ETF (VYM) | Financials, technology, healthcare, industrials | These four sectors total 61% of the portfolio | You may be more tied to big U.S. blue chips and economic cycles than the yield suggests |
| Invesco S&P 500 Pure Value ETF (RPV) | Financials, healthcare, consumer staples, materials | These four sectors total 64%; technology is under 2% | You’re making a clearer value tilt, with less reliance on tech-driven market rallies |
It’s also important to diversify by geography. If most of your investments are in U.S. dollars, you’ll be closely tied to U.S. growth and policy. Pairing U.S.-heavy equity with bond exposure from various issuers and regions can help balance this out.
Mixing Asset Classes for Stable Returns
Mixing stocks and bonds can reduce the risk of relying on just one source of income. Some high-yield ETFs focus on dividend stocks, while others hold high-yield credit. By pairing them, you can balance steady income with price swings.
Asset allocation works best when each piece has a specific role. A broad bond fund can reduce equity volatility, while a targeted equity fund can support growth. Going too narrow can hide one-industry risk behind a “yield” label.
Rebalancing Your High-Yield Holdings
Rebalancing is key to keeping your high-yield funds aligned with your risk level. Start by checking if the yield is supported by the market, not just a headline.
- Watch the gap between distributions and total return, if prices drop for a long time.
- Check if sector diversification has changed, so one theme doesn’t dominate your results.
- Reset asset allocation targets if one sleeve grows too big after a rally or shrinks after a drawdown.
This discipline helps keep your income stream clear-eyed, avoiding the trap of high payouts hiding NAV erosion.
Tax Implications and Cost Considerations
When you look for high-yield funds, the total return isn’t just the payout. Your costs and taxes can affect what you keep. It’s smart to compare the expense ratio and after-tax yield together.
Understanding Expense Ratios Impact on Returns
The expense ratio is a yearly cost, whether the market is up or down. It’s like a steady drain that never stops. Controlling fund costs is one of the few things you can do with confidence.
Vanguard High Dividend Yield ETF (VYM) has an expense ratio of 0.06%. On a $100,000 investment, that’s about $60 in fees each year. Higher-cost funds can take several times that amount, before taxes.
| Fund | Expense ratio | Estimated annual fee on $100,000 | What the number means for fund costs |
|---|---|---|---|
| Vanguard High Dividend Yield ETF (VYM) | 0.06% | $60 | Low drag; more of your income can stay invested |
| SPDR Portfolio High Yield Bond ETF (SPHY) | 0.05% | $50 | Even small fee differences can add up over many years |
| Invesco S&P 500 Pure Value ETF (RPV) | 0.35% | $350 | Higher annual drag; you need stronger results to offset costs |
| ETRACS Alerian MLP Infrastructure Index ETN (MLPA) | 0.45% | $450 | Costs can eat into cash flow, even in flat markets |
| SPDR Bloomberg Short Term High Yield Bond ETF (SJNK) | 0.40% | $400 | Short-term focus doesn’t eliminate the impact of annual fees |
| iShares Fallen Angels USD Bond ETF (FALN) | 0.25% | $250 | Moderate fee; significant when comparing similar strategies |
| iShares iBonds 2027 Term High Yield and Income ETF (IBHE) | 0.35% | $350 | Term structure may shape cash flows, but fees stay constant |
| Fidelity High Yield Factor ETF (FDHY) | 0.35% | $350 | Factor screens can help selection, yet the fee reduces net results |
| iShares High Yield Defensive Bond ETF (HYDB) | 0.35% | $350 | “Defensive” holdings don’t remove the certainty of costs |
If two high-yield funds take similar risks, the lower expense ratio can lead to a better after-tax yield. Fees don’t care about market conditions, so always consider them as guaranteed outflows.
Tax Treatment of Different Distribution Types
Taxes are as important as fees because they can reduce your take-home pay. Distribution types, like dividends or interest, can be taxed differently. Each type can affect your tax return in unique ways.
There are gaps between index and fund returns, not because of manager skill. Some structures face withholding taxes, reducing your account balance. This is critical when comparing similar options and estimating after-tax yield.
Your account type also matters. A taxable brokerage account treats distribution types differently than a retirement account. Always review the fund’s distribution breakdown and tax documents before relying on the yield. This isn’t personalized tax advice, and a qualified tax professional can help you match high-yield funds to your situation.
Conclusion
You’ve learned how seven High-Yield Funds can earn income in various ways. Vanguard High Dividend Yield Index Fund ETF and Invesco S&P 500 Pure Value ETF are just a few examples. Each fund has its own approach to earning income.
It’s important to understand where the income comes from. Look at what the fund owns and how it makes money. Also, consider the fees you’ll pay.
When choosing the best high-yield funds, think about sustainability. A high yield might not last if the fund can’t keep up with payouts. Be wary of yields over 8% and watch the total return, not just the yield.
High-yield ETFs can add variety to your portfolio but also increase risk. They focus on specific areas, which can be risky. High-yield bond funds add another layer of risk, including credit and interest-rate risks.
Remember, past success doesn’t mean future results. High-Yield Funds are risky and could lose your investment. Always check the fund’s history and make sure it matches your goals and risk level. If unsure, a financial advisor can help you plan.