The stock market has not been a great place to invest in the past decade. In fact, the S&P 500 is lower now than it was 10 years ago.

Bonds, on the other hand, have been a much better place to invest. The Barclay’s Capital U.S. Aggregate Bond Index (an index of investment-grade corporate bonds) had an average annual return of about +6.5% during the past 10 years. Other types of bonds have been much better.

High yield bonds, as measured by the Barclay’s Capital High Yield Very Liquid Index, averaged about +6.8% per year during the past 10 years and have performed much better than that lately. The average emerging market closed-end bond fund has averaged a whopping +13.8% return a year for the past 10 years, according to ETF Connect.

Sure, these different bond investments have been great in the rearview mirror, but there is also reason to believe that certain sectors should continue to perform well going forward.

The AllianceBernstein Global High Income Fund (NYSE: AWF) is a closed-end fund that seeks high income and capital appreciation through any kind of debt security the fund sees fit to invest in from anywhere in the world. As of June 30th, AWF was primarily invested in high yield bonds (44%), emerging market government and corporate debt (19%) and corporate investment grade bonds (9%).

Top country allocations include the United States, Russia and Brazil. The fund also had about 88% of assets invested in U.S. dollar-denominated securities, which has been a good place to be as the dollar has rallied strongly against other major currencies in 2010.

So, what’s the big deal with this particular fund?

There’re a lot of multi-sector bond funds out there. The big deal is the amazing results this fund has posted. Morningstar ranks AWF in the top 1% of performance for the emerging market debt category for just about every measurable period. The fund has achieved remarkable annualized total returns of +18.5%, +14.4% and +15.7% for the past three, five and 10 year periods, respectively.

The beautiful thing about this fund is that it isn’t limited to any one bond sector that could fall out of favor. The fund can move to different sectors and locations all over the world to find the best possible opportunities at any given time, and management has proven itself worthy of this flexibility.

There are reasons to be optimistic about the sectors in which AWF is currently invested.

High yield bonds had their best year ever in 2009 — the Bank of America Merrill Lynch High Yield Index returned a whopping +57% for the year. However, history indicates that high yield bonds can run for a few more years. After a terrible market in 1990, the high-yield bond sector outperformed Barclays Capital Aggregate Bond Index all the way through 1997. And, after the 2002 bear market, high yield bonds outperformed investment grade bonds through 2006.

A falling corporate default rate (an important gage of high yield bonds, as it measures the level of risk in the sector) should be a huge tailwind for the sector in the coming quarters. Moody’s reported in early June that global default rates are on the way down and have now fallen -44% from their peak of 13.5% in November 2009 to about 7.5% today. The ratings agency is also calling for the U.S. corporate default rate to plummet to just 2.9% by the end of 2010.

Meanwhile, emerging market debt continues to perform well. According to the J.P. Morgan Emerging Market Bond Index, emerging-market bonds have been the top performing bond sector of the past fifteen years.

Not only have emerging markets experienced unprecedented economic growth in the past decade, but most emerging market countries didn’t overindulge in subprime assets and have emerged from the financial crisis with stronger balance sheets than many Western governments. The debt quality is improving and interest rates are still relatively high.

The investment -grade bond sector continues to trade at historically high spreads. Investment grade bonds offer higher yields than the 10-year average credit spread (the difference in yield from 10-year treasuries). This sector also offers investors a relatively safe alternative to treasuries in uncertain markets.

The fact is all three sectors have merit. But, with the amount of uncertainty in today’s market, it’s not a bad idea to diversify.

AWF pays a monthly distribution that has steadily risen since 2004. The fund yields 8.4% after a recent monthly distribution hike in December from $0.0925 to $0.10. Since AWF is a closed-end fund that trades on the New York Stock Exchange, it can be bought or sold any day the market is open just like a stock. And distributions can be taken as income or easily reinvested.

Action to Take –> In both the short and long term there is likely to be some class of debt securities that performs well in some part of the world, and this fund is likely to find it. Income investors should consider AWF as a core holding.