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Fund Spy: Morningstar Medalist Edition

A Look Inside Fidelity's Core Bond Lineup

With three Morningstar Medalists in the intermediate-term bond category, the firm has built an impressive core bond effort with a straightforward, risk-conscious approach.

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Unlike some of its wider-ranging competitors, Fidelity plays it relatively straight when it comes to its lineup of intermediate-term bond taxable options. The firm's managers don't make meaningful interest-rate bets and tend to maintain sizable allocations to Treasuries for diversification, even in Fidelity's more adventurous strategies. And while the portfolio managers do make some use of derivatives, these are largely cash bond strategies.

While the funds are more benchmark-aware than some--Fidelity is notably one of the only firms not to launch an unconstrained option in recent years--they are not closet indexers. Instead of making big macro bets, the focus is on identifying mispricings at the sector and security levels, often with a contrarian edge. So, for example, the firm's funds have increasingly favored corporates--and even junk bonds--during the past year as that sector has come under pressure, while significantly underweighting mortgages, which the team views as overvalued. Fidelity has built an impressive team of analysts and has invested in a suite of tools that supports security analysis in corporates, mortgages, and structured fare. Its mortgage team has done a particularly good job at dedicated charges such as  Fidelity GNMA (FGMNX), and its efforts play a big role in the success of the core funds.

Sarah Bush has a position in the following securities mentioned above: FBNDX. Find out about Morningstar’s editorial policies.