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

How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!
estate planning

How to Use Your Estate Plan to Save on Taxes While You’re Still Alive!

Upstream basis planning is a trust strategy that can save wealthy people on their capital gains taxes and income taxes associated with highly apprecia…
July 3, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Don’t Be Tricked into Voluntarily Paying Higher Taxes on Your IRA
IRAs

Don’t Be Tricked into Voluntarily Paying Higher Taxes on Your IRA

Traditional IRAs are set up in a way that basically incentivizes you (and your heirs) into paying the highest tax bill possible. Don’t fall for it. Co…
July 4, 2022

Recommended

5 Exciting Emerging Markets Funds
Foreign Stocks & Emerging Markets

5 Exciting Emerging Markets Funds

Emerging markets funds haven't been immune to global inflationary pressures. But now might be the time to strike on these high-risk, high-reward produ…
July 5, 2022
How to Go to Cash
investing

How to Go to Cash

What exactly does it mean to 'go to cash,' and what should you do once you have?
July 5, 2022
Is the Stock Market Closed for the Fourth of July in 2022?
Markets

Is the Stock Market Closed for the Fourth of July in 2022?

Independence Day falls on a Monday in 2022, so the bond and stock markets will enjoy a long holiday weekend. Here's a look at the markets' holiday hou…
July 1, 2022
Top Bear Market Tips from 10 Financial Advisers
investing

Top Bear Market Tips from 10 Financial Advisers

When a bull market turns into a bear market, it can be hard to know what to do. Take comfort in the guidance of 10 financial professionals.
June 30, 2022