At long last, "there's income back in fixed income," says Fidelity Strategic Income (FADMX) fund co-manager Ford O'Neil. The Bloomberg Aggregate U.S. Bond index now yields better than 5%, which "makes us optimistic about this asset class," he adds.
The backdrop, of course, is the terrible year that bonds had in 2022, as the Federal Reserve raised interest rates. (Bond prices and interest rates move in opposite directions.) Strategic Income – a member of the Kiplinger 25, our favorite no-load mutual funds – lost 11% that year, compared with a 13% decline in the Agg index.
But over the past 12 months, the multisector bond fund has excelled, with a 4.0% return, outpacing the Agg index and its peers.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Strategic Income invests in bonds from multiple sectors, keeping in mind a benchmark of 45% of assets in high-yield bonds (debt that's rated double-B to triple-C), 30% in U.S. government and other high-quality issues, 15% in emerging-markets debt, and 10% in IOUs from developed foreign countries. The lead managers, O'Neil and Adam Kramer, decide how much to devote to each sector; other Fidelity bond sector specialists pick the securities.
Over the past 12 months, the managers tilted toward high-yield bonds, specifically corporate bonds and leveraged loans (short- to medium-term loans issued to firms with below-investment-grade ratings). That shift paid off as both bond sectors posted double-digit returns over the past year. Emerging-markets debt and the fund's foreign developed bond sleeve performed well, too, beating their respective benchmarks. But the fund's U.S. government debt was flat and a bit of a drag on returns.
These days, the managers are choosing to hew closely to their benchmark's weighting. "There's a wide range of macroeconomic outcomes that could unfold in the next six to 12 months and we would prefer a neutral position," he says. In 2024, he adds, smart security selection will matter more than asset allocation.
Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related content
- Best Bond ETFs to Buy Now
- Many Mutual Funds Are Converting To ETFs: What To Know
- Should You Buy Bonds Now? What To Consider
-
Dow Hits New Intraday High on Fed Day: Stock Market TodayNot even the most important stock in the world could keep the oldest equity index down on a significant day for markets.
-
Savings Goal CalculatorTools Want to know how much you need to save each month to reach your financial goals? Our calculator helps you build a realistic savings plan.
-
The 'Nothing Ever Happens' Market: How Stocks React (Or Don't) to Geopolitical EventsGeopolitical events – terrorist acts, wars or military intervention – can give stocks a jolt. But that doesn't mean your portfolio will take a long-term hit.
-
A Fidelity Fund Misses Out on Soaring Bank StocksThe Fidelity International Growth Fund has outperformed over the long term, but its lagging exposure to bank stocks has weighed on more recent returns.
-
Where is the Foreign Dividend Boom Headed?It's been a golden six months for foreign dividend stocks, but can any be relied on for predictable income going forward? Here are some options.
-
9 Warren Buffett Quotes for Investors to Live ByWarren Buffett transformed Berkshire Hathaway from a struggling textile firm to a sprawling conglomerate and investment vehicle. Here's how he did it.
-
Are There Opportunities to Invest in China?Opportunities to invest in China are plentiful and, arguably, shouldn't be ignored in the U.S. Here's where to look.
-
Bonds Pay in Good and Bad TimesBonds can act as a financial safety net through good times and bad. But different bonds carry different returns and risks, so do your homework before investing.
-
A Timeline of Warren Buffett's Life and Berkshire HathawayBuffett was the face of Berkshire Hathaway for 60 years. Here's a timeline of how he built the sprawling holding company and its outperforming equity portfolio.
-
What Set Warren Buffett ApartAs Warren Buffett prepares for retirement, we reflect on what we've learned from his 60 years of leadership at Berkshire Hathaway.
