Kip 25

Fidelity Advisor Strategic Income Invests in a Tepid Economy

The fund has evolved a bit over time, and is positioned to do well in a moderately growing U.S. economy.

The bond market has been perplexing of late. When Treasuries do well, higher-risk bonds, such as corporate debt, typically lag. Not this year. Both bond sectors have rallied recently. Cuts in U.S. short-term interest rates propelled Treasuries (interest rates and bond prices move inversely), while a low simmer in the U.S. economy drove corporate bonds higher.

The Bloomberg Barclays U.S. Aggregate Bond index, which is loaded with Treasuries and high-quality corporate debt, gained a whopping 11.5% over the past 12 months through October 31. Unfortunately, that makes it tough for many bond funds to look good by comparison. Fidelity Advisor Strategic Income (symbol FSTAX), delivered an 8.4% return, which in any other year would be considered a banner performance.

The multisector fund, a member of the Kiplinger 25, balances government securities with junkier, higher-yielding debt to deliver a fatter income stream than the Agg index. The fund currently yields 3.21%, compared with a 2.29% yield for the Agg. "It's rare for a fund with a yield in the mid threes to generate 8% to 9% returns," says Ford O'Neil, who, with Adam Kramer, makes the broad calls on which sectors of the bond market to emphasize or underplay. Specialists within each sector do the bond picking.

These days, the man­agers have positioned the fund to do well in a moderately growing U.S. economy. O'Neil and Kramer start with a target of 40% of assets in high-yield bonds; 25% in U.S. government securities; 15% each in foreign-developed and emerging-markets debt; and 5% in floating-rate loans. Then they tweak the proportions depending on their big-picture view. Currently, the fund is tilted toward high-yield debt (42% of assets) and floating-rate loans (nearly 9%). "If we can grow at 1.5% to 2%, that's good news for the bonds that we favor today," says O'Neil.

The fund, which recently celebrated its 25-year anniversary, has evolved a bit over time. O'Neil added a sliver of stocks to the high-yield portion of the fund seven years ago to reduce overall volatility. Shares in Air Canada, the fund's largest stock holding, have climbed 47% over the past six months.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
10 States With the Highest Sales Taxes
Tax Breaks

10 States With the Highest Sales Taxes

Before you embark on a shopping spree in any of the 10 worst states for sales taxes, make extra room in your budget.
June 16, 2021
12 Housing Stocks to Ride the Red-Hot Market
investing

12 Housing Stocks to Ride the Red-Hot Market

The U.S. has a housing shortage and a love affair with home improvement, both of which could create tailwinds for this group of housing stocks.
June 8, 2021

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
5 Best Mutual Funds to Fight Inflation
mutual funds

5 Best Mutual Funds to Fight Inflation

These five mutual funds cover a wide variety of asset classes, but they share a similar trait: They're effective hedges against inflation.
June 18, 2021
Will the Stock Market Close for Juneteenth?
Markets

Will the Stock Market Close for Juneteenth?

Washington has passed legislation turning Juneteenth into a federal holiday, with immediate effect. Will the stock market close in observance?
June 17, 2021
Stock Market Holidays in 2021
Markets

Stock Market Holidays in 2021

Is the stock market open today? Take a look at which days the NYSE, Nasdaq and bond markets take off in 2021.
June 17, 2021