Investing in diversified bond funds is more 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, PGIM Absolute Return Bond Fund PADAX and Ancora Income AAIIX. 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 CommoditiesPLUS Strategy has three-year annualized returns of 20.1%. As of the end of September 2023, PCLAX has 11% of its assets invested in miscellaneous bonds.

PGIM Absolute Return Bond Fund seeks positive returns regardless of the market conditions by investing most of its assets along with borrowings, if any, in debt securities and investments that provide exposure to bonds. PADAX advisors may also invest in debt securities rated below investment or junk bonds.

PGIM Absolute Return Bond Fund has three-year annualized returns of 2.5%. PADAX has an expense ratio of 0.97% compared with the category average of 1.23%.

Ancora Income Fund invests mostly in debt securities, preferred stocks, high dividend-bearing common shares, as well as common and preferred shares of closed-end investment companies with market capitalization of more than $500 million. AAIIX also invests in closed-end funds and convertible securities of large, small and mid-sized companies.

Ancora Income Fund has three-year annualized returns of 2.5%. Kevin Gale has been the fund manager of AAIIX since April 2020.

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.