A challenge when seeking higher levels of portfolio income is not incurring a higher level of risk. Higher yields often reflect a higher perceived level of risk.

To help investors strike a balance between a bigger stream of portfolio income and avoiding a higher chance of losing principal, this month’s Mutual Fund First Cut looks at two characteristics: the category risk index and the yield.

The category risk index compares how volatile a fund’s total return has been over the last three years relative to the typical variation in return for all funds in its category. For example, a risk index of 0.90 for a fund indicates that it is 10% less volatile than the typical fund in its category. Values above 1.00 denote more risk than average and values below 1.00 denote less risk than average for the category.

Mutual fund yield is calculated as income for the most recent 12 months divided by month-end net asset value.

Passing mutual funds have a category risk index ranking in the bottom 40% of their respective categories (equivalent to a Category Risk Grade of A or B). They also have yields above their respective category averages. Passing funds also have no loads, have below-average expense ratios and are open to new investors. The table shows the top 25 funds passing this First Cut screen, ranked by yield.

Shelton Equity Income Direct Shares’ (EQTIX) yield of 7.0% reflects the use of covered calls. Such a strategy produces more income but can lead to potential capital gains being forfeited in a rising market.

Lower-Risk Equity Mutual Funds With Above-Average Yields
(Ranked by Yield)

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