Investing in diversified bond funds is preferred to individual bond investing, as building a portfolio of the second type may prove relatively more expensive. A higher level of liquidity also makes diversified bond funds more attractive.

Moreover, mutual funds having significant exposure to diversified bonds are excellent choices for investors seeking steady returns with a relatively low level of risk. Investing in funds that maintain a portfolio of bonds issued across a wide range of market sectors also reduces sector-specific risk.

Below, we share with you three top-ranked diversified bond mutual funds, namely PIMCO CommoditiesPLUS Strategy PCLAX, Aristotle Strategic Income PLSFX and Nuveen Preferred Securities & Income Fund NPSAX. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and is expected to outperform its peers in the future. Investors can click here to see the complete list of funds.

PIMCO CommoditiesPLUS Strategy fund invests most of its net assets directly in commodities or commodity-linked derivative instruments and in a portfolio of low-volatility, fixed-income instruments like bonds, debt securities and other instruments with similar economic characteristics. PCLAX advisors generally invest in domestic-or-foreign, public-or-private sector issues.

PIMCO Commodities PLUS Strategy fund has three-year annualized returns of 9.7%. As of the end of June 2024, PCLAX had 11.7% of its assets invested in miscellaneous bonds.

Aristotle Strategic Income I-2 fund invests most of its net assets in income-producing investment-grade and non-investment-grade debt instruments. PLSFX advisors generally invest in floating-rate loans, corporate debt securities, asset-backed securities, mortgage-related securities, U.S. government-backed securities and agency securities.

Aristotle Strategic Income I-2 fund has three-year annualized returns of 2.3%. PLSFX has an expense ratio of 0.69%.

Nuveen Preferred Securities & Income Fund seeks a high level of current income as well as total return by investing most of its assets, along with borrowing, if any, in preferred securities and other income-producing securities. NPSAX advisors also invest in companies principally engaged in financial services, and securities rated investment grade and below-investment grade in various proportions.

Nuveen Preferred Securities & Income Fund has three-year annualized returns of 1.3%. Douglas M. Baker has been the fund manager of NPSAX since June 2007.

To view the Zacks Rank and the past performance of all diversified bond mutual funds, investors can click here to see the complete list of diversified bond mutual funds.