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A High-Yield Fund With a Conservative Bent

Sarah Bush

Sarah Bush: Vanguard High-Yield Corporate (VWEHX), as its name suggests, lands in Morningstar's junk-bond category. So, like all the funds in that category, it invests in companies that are below investment-grade and have a pretty high rate of default risk.

Now, although the fund is definitely risky, it is one of the more conservative options in the category; it typically favors the BB rungs of the category. And those are loans and bonds--bonds mostly--that have less credit risk than you would see in some portfolios.

Manager Michael Hong, who runs the fund for Wellington Management, is actually even more conservatively positioned as of late. He points to relatively tight credit valuations and the potential for big flows out of the high-yield category to take their toll on returns and cause losses for investors.

One of the things we like about this fund is that, like many other Vanguard funds, it features rock-bottom low expense ratios. So, that means that Michael Hong hasn't had to take a ton of risk, and the fund has still had kind of a middling return profile relative to other funds in the category that do take on more risk.

Where this return profile comes in handy--and the fund's conservatism comes in handy--is when bond markets sell off. So, although this fund lost a pretty steep amount in 2008, it still did better than a lot of its competitors.

All in all, this fund's seasoned management team, its relatively cautious approach--which can make for a smoother ride than many of the funds in the category--and rock-bottom expenses add up to a Morningstar Analyst Rating of Bronze.