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Fund Spy

A Look at Fidelity’s Tax-Exempt Lineup

Fidelity’s municipal-bond funds are worthy of note.

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Fidelity may be known for its equity effort, but it has quietly built an impressive lineup of fixed-income funds. We've previously highlighted the firm's taxable lineup, but its tax-exempt funds are similarly noteworthy, with six funds earning Morningstar Analyst Ratings of Gold and one earning a rating of Silver.

Fidelity's municipal-bond team is as concerned about meeting investors' expectations for safety as delivering competitive total returns. It avoids tools that can add volatility, such as leveraged inverse-floaters, and keeps each fund's duration close to that of its designated benchmark without using derivatives to hedge interest-rate exposure. And unlike more-yield-focused rivals, the team won't load up on lower-quality bonds or rockier sectors such as tobacco just to boost returns. Although these funds might not top their respective categories in healthier credit markets, Fidelity's approach has offered solid downside protection in rocky muni markets and has led to solid results over the longer haul.

Elizabeth Foos does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.