Advertisement
Kip 25

Fidelity Strategic Income Bets on U.S. Economic Growth

This member of the Kiplinger 25, the collection of our favorite no-load mutual funds, balances government bonds and high-grade corporates with higher-yielding picks to beat its benchmark.

A portfolio of different kinds of bonds that do well at different times can outperform the broader bond market over the long haul. That’s the thinking behind Fidelity Strategic Income (FADMX), a member of the Kiplinger 25, our favorite no-load mutual funds. The fund balances government bonds and high-quality, investment-grade corporate bonds with junkier, higher-yielding bonds to deliver protection in down markets and a fatter income stream than the Bloomberg Barclays U.S. Aggregate Bond index delivers.

Advertisement - Article continues below

The strategy has worked over the past year. The Agg, a broad U.S. bond market index, declined 2.2% over the past 12 months, but Strategic Income held up slightly better, with a 1.0% loss. The fund’s yield, 3.92%, also edges the Agg index yield of 3.64%.

Lead managers Ford O’Neil and Adam Kramer make the big-picture decisions and leave the bond picking to experts—other Fidelity fund managers—in each bond subsector. Strategic Income typically invests about 40% of the fund’s assets in U.S. high-yield debt, 25% in U.S. government and investment-grade debt, 15% in emerging-markets bonds, 15% in foreign developed-markets bonds, and 5% in floating-rate securities (loans with variable rates that reset every 30 to 90 days). But the fund managers can stray from those guiderails depending on their view of the economy and the market.

Advertisement
Advertisement - Article continues below

The portfolio is positioned for moderate U.S. economic growth and higher interest rates in 2019. At last report, the fund held about 40% of assets (its target amount) in U.S. high-yield debt, and another 9.5%—nearly double the typical exposure—in floating-rate loans. “Every time the Fed raises rates, we get more income,” says O’Neil.

But the managers have pared back emerging-markets debt. A stronger dollar is trouble for countries in the developing world, many of which borrow in U.S. dollars. It means those countries must fork over more of their home currency to buy dollars to pay their debts. And countries seeking new loans face higher borrowing costs because of higher U.S. interest rates. “Those are two headwinds for emerging markets,” says O’Neil. “That’s why we’re cautious there.”

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020

Recommended

10 Stocks to Invest in the Health Care Revolution
healthcare stocks

10 Stocks to Invest in the Health Care Revolution

These companies are fighting disease and improving our standard of care.
July 2, 2020
Cash In With This Gaming ETF
Technology

Cash In With This Gaming ETF

Cash in on the video gaming craze with this fund.
July 1, 2020
13 Best Vanguard Funds for the Next Bull Market
mutual funds

13 Best Vanguard Funds for the Next Bull Market

Optimistic that the bounce since March is indeed the start of the next bull market? Here are the 13 best Vanguard funds to help you make the most of i…
June 25, 2020
A Mid-Cap Fund With Big Gains
mutual funds

A Mid-Cap Fund With Big Gains

The fund’s best performers over the past year were software firms.
June 24, 2020