Fund Focus: bond funds yielding more than the FTSE 100

Investments can look “cheap” long before any recovery hoves into view, and that’s certainly the case for government bonds.

They have sold off (again) in recent months, in the UK and beyond, as worries about inflation and possible interest rate rises start to worry investors.

Yields move inversely to prices and those have duly gone up again, with the yield on a 10-year UK government bond coming to around 5% at the time of writing.

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Whether you are an income investor or want to lock in a return (based on the yield) by holding a bond directly to maturity, such numbers are nothing to be sniffed at.

Yields have certainly fallen in other parts of the investment universe thanks to strong returns: the iShares Core FTSE 100 ETF GBP Dist (LSE:ISF) has a trailing 12-month distribution yield of just 2.9%, well below the levels of a few years ago.

It could therefore make sense to load up on bonds, and UK investors have reportedly done so with direct investments in recent weeks. 

But buying direct is not the only way to take advantage of higher yields and lower prices, with plenty of bonds looking appealing by such measures.

The bond funds with interesting yields

Plenty of broad bond exchange-traded funds (ETFs) exist, and these have looked good on the yield front in recent times.

The iShares Core UK Gilts ETF GBP Dist (LSE:IGLT) comes with a yield of 4.5% over the last 12 months, while the more international iShares Core Global Aggt Bd ETF GBPHDist (LSE:AGBP), which holds a mixture of government and corporate debt, had a 3.3% yield over the same period.

That’s not bad for investors who want a diversified form of exposure to the asset class, or don’t want the hassle of picking their own bonds directly.

If we look at active funds, even the flexible portfolios that can invest across the entire bond space have some decent yields. But, as ever, understanding what these funds do, and what they expose you to, is essential.

Turning to one name that has long sought out a high yield, the FTF Brandywine Global Inc Optr EB Inc (BNBS638) fund has a distribution yield (the measure of income the investor receives) of almost 8%.

The fund has a spread of different investments, with government or government-related debt accounting for around a third of the portfolio, corporate bonds making up 43% and mortgage-backed securities on around 21%. 

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A big chunk of the portfolio is either in riskier, high-yield debt or on a BBB credit rating, the lowest rung for investment grade, higher-quality debt.

The fund has returned around 3% so far in 2026, making it one of the better-performing flexible bond funds in a tricky year. 

But 2022, a year marked by rising interest rates and falling bond prices, was not kind to its investors, with the fund losing almost 15%.

Some other, better-known names do well on the yield front. The enormous PIMCO GIS Income Instl GBPH Inc (B8RHFL5) has an annualised distribution yield of more than 6%, and again has quite a diversified approach. 

Some 14% of the fund is tied up in “government-related” debt, with investment-grade corporate bonds on 15%. 

Mortgage-backed securities have a substantial presence in the fund. In performance terms, it has had a fairly flat 2026 so far but made more than 10% in 2025.

Racier options

Given its name, it’s no surprise that funds with heavy exposure to the high-yield subsector stand out on this front too.

One name that has stood out both via yield and total return is Royal London Sterl Extra Yld Bd Z (BG5GTJ6). 

It kicks out a yield of 6.5% and is the best-performing fund from the Investment Association’s Sterling Strategic Bond sector over a five-year period.

The fund has a good level of exposure to debt from banks and financial services companies, which accounts for roughly a quarter of the portfolio. 

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It’s also worth noting that the fund does make some use of its flexible remit, with a decent amount of the portfolio in the BBB-rated bonds mentioned earlier.

Holding such debt alongside high-yield bonds might, in theory, offset some of the risk taken. Although investors should remember that high yield, having performed well in recent years, can always run into trouble if the economy weakens and issuers of this riskier debt struggle.

Having said that, high yield is much less bothered by interest rate changes than government or investment-grade corporate debt. If another wave of inflation is due, such characteristics might again have some appeal.