Dreyfus Tops Lipper Fund Performance Charts

The best-performing high yield funds for the year as of July 15 were dominated by Dreyfus, according to statistics from Lipper Analytical Services. Various Dreyfus funds took the top five slots in statistics from Lipper, posting returns between 31.93% and 16.51%. In fact, the top four all have returns of at least 31.38%.

Of those Dreyfus funds, only the fifth-highest, the Dreyfus High Yield Fund, has existed long enough to make year-over-year comparisons; it ranked 244 for 1998, posting a return of negative 15.84%. (Dreyfus officials did not return phone calls seeking comment on their performance.)

Rounding out the top 10 for the year-to-date returns are Loomis Sayles High Yield Fund (15.68%), Fidelity Capital (14.16%), AIM High Yield II A (13.30%), AIM High Yield II B (12.86%), and Loomis Sayles High Yield Fixed Income (12.68%).

The difference between last year and this year becomes even sharper when the top funds from last year are considered. For 1998, the top five funds are Strong Short Term High Yield Fund (8.32%), Brinson High Yield Fund (7.75%), Conseco Fund Growth (6.56%), PIMCO (6.50%), and Payden & Rygel (6.34%).

So far this year, of those five, only Conseco finished in the top 100, ranking 53. The next best is Strong Short Term Fund, at 154.

Investors across the board said that the single-Bs and triple-C issues have outperformed their higher-rated counterparts thus far in 1999. To be sure, the triple-C category has returned 6.97% to investors and single-Bs have posted a 3.23% return, according to the Bear Stearns High Yield Index. Double-Bs, meanwhile, have returned a relatively poor 1.23% to investors.

The rest of this year, though, may end up behaving more like the second half of 1998, during which lower-rated issues underperformed their higher-rated counterparts. In fact, the return scenario in high yield this year is "practically a mirror image" of what it was last year, said David Hinman, portfolio manager at PIMCO.

Last year that trend was largely the result of a horrible third quarter, which prompted investors to sell their low-rated issues.

Looking Ahead

So what's expected for the rest of the year? It depends heavily, of course, on interest rates. After that, most market players said that double-Bs are poised to do well, although they offer slightly different reasons.

One investor simply said that double-B's are undervalued now and, consequently, represent good buys in the market. Another investor, however, did not necessarily agree that double-Bs are undervalued; he thought it was possible that single-Bs and triple-Cs are overvalued.

He noted that Moody's Investors Service's 12-month trailing default rate reflects a 100% increase in the number of companies defaulting, while the lower credits have outperformed the high yield market.

"Those two trends can't continue," he said. He expects the bond performance to come in line with the default picture, meaning that low-rated issues (those prone to default) will see some downside.