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A Core Bond Fund With a Contrarian Flavor

Tue, 29 Sep 2015

Silver-rated Fidelity Investment Grade Bond stays closest to the benchmark among its Fidelity peers, but it's no closet-indexer.

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Video Transcript

Sarah Bush: Fidelity has made impressive investments in its taxable-bond resources over the years, and this fund, Fidelity Investment Grade Bond (FBNDX), is a clear beneficiary. Fidelity has several entrants in the intermediate-term bond category, and this fund is the one that stays closest to the Barclays U.S. Aggregate Bond Index.

Although it does have some flexibility to invest in high yield and has done so recently, this is generally an investment-grade fund. Longtime manager Jeffrey Moore doesn't make big interest-rate bets and keeps duration close to that of the fund's index.

That said, this is not a closet index fund. He will overweight and underweight sectors and securities where he sees mispricings. That can give the fund, at times, a contrarian look. Recently, for example, the fund has had a significant overweight to corporates, which have not done as well in the past year. Moore is supported in his efforts by Fidelity's deep corporate and mortgage teams, and he also works closely with Ford O'Neil on the team's core and core-plus strategies.

The fund's record under Moore has been only middling, and that's due to poor performance in 2007, thanks to struggles in an ultrashort internal bond fund that the fund had access to. That said, Fidelity has made great strides in improving its risk processes over recent years, and the fund's performance since 2009 has been significantly better.

Finally, as with most Fidelity bond funds, its attractive expenses give it an additional edge. At 45 basis points, its expenses rank as low relative to other no-load competitors. The low expenses on this fund combined with its sensible strategy and experienced manager give it plenty of appeal as a core option, and it earns a Morningstar Analyst Rating of Silver.

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