The Federal Reserve has begun to lower interest rates, so it's a good time to check in with the Fidelity Total Bond ETF (FBND), an actively managed bond exchange-traded fund (ETF) in the Kiplinger ETF 20. The fund beat the Bloomberg U.S. Aggregate Bond Index over the past 12 months with a 12.5% return.
"We outperformed the benchmark by about one percentage point, which is our goal," says Ford O'Neil, who leads the fund with Celso Munoz and four co-managers. The fund has outdone the Agg over the past three and five years, too.
Like most intermediate-term, high-quality bond funds, Fidelity Total Bond owns a mix of U.S. government debt, corporate bonds, and mortgage-backed or asset-backed securities. But the managers' tilts in those sectors have made all the difference.
Sign up for Kiplinger’s Free E-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.
Over the past year, for instance, the managers favored medium-maturity government debt over short- or long-term bonds. They also leaned into high-yield debt (IOUs rated double-B to triple-C) and emerging-markets bonds, which have performed well in recent months, says O'Neil.
The fund can invest up to 20% of assets in lower-quality debt securities. In the investment-grade (rated triple-A to triple-B) corporate-bond arena, O'Neil says the managers emphasized financial IOUs, in particular securities issued by big money-center banks such as JPMorgan Chase, Deutsche Bank and Barclays.
"The regulatory environment is still strong" in the banking sector, which helps to buoy credit quality, says O'Neil.
He and his cohorts don't expect a recession in the coming year, but they have been "reducing risk," says O'Neil. In particular, they're cautious about corporate bonds, given the sector's recent strong performance. "There's not a lot of opportunity there," he says. So the managers have been modestly paring back the fund's corporate-debt holdings and adding to Treasuries, which, says O'Neil, will “allow us to be nimble” and snap up securities in other sectors when opportunities (or volatility) arise.
Note: This item first appeared in Kiplinger 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
-
Is the GOP Secretly Planning a Tax Increase on the Rich?Tax Reform As high-stakes tax reform talks resume on Capitol Hill, questions are swirling about what Republicans and President Trump will do.
-
Can the 'Guardrails Approach' Protect Your Retirement Investments?This investing method helps retirees avoid running out of money, even in a highly volatile market.
-
Can the 'Guardrails Approach' Protect Your Retirement Investments?
This investing method helps retirees avoid running out of money, even in a highly volatile market.
-
Social Security Is Taxable, But There Are WorkaroundsIf you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
-
Serious Medical Diagnosis? Four Financial Steps to TakeA serious medical diagnosis calls for updates of your financial, health care and estate plans as well as open conversations with those who'll fulfill your wishes.
-
What Wall Street's CEOs Are Saying About Trump's TariffsWe're in the thick of earnings season and corporate America has plenty to say about the Trump administration's trade policy.
-
To Stay on Track for Retirement, Consider Doing ThisWriting down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
-
How to Make Changing Interest Rates Work for Your RetirementHigher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
-
When to Sell Your StockKnowing when to sell a stock is a major decision investors must make. While there's no one correct answer, we look at some best practices here.
-
Within Five Years of Retirement? Five Things to Do NowIf you're retiring in the next five years, your to-do list should contain some financial planning and, according to current retirees, a few life goals, too.
