3 Strong Taxable-Bond Funds From Fidelity

Emory Zink: Fidelity’s taxable-bond efforts benefit from a robustly resourced and team-managed approach. Portfolio managers are in regular dialogue with a macroeconomic research group and consult with sector specialists from across the firm’s broader fixed-income cohort--which includes over 70 analysts assigned to high-yield, emerging markets, real estate, investment-grade corporate credit, and mortgages--all to assemble an informed view of the investment landscape. Clusters of portfolio managers with a particular mandate focus, such as limited-duration or core bond, are joined by a dedicated quantitative resource on each group’s desk, and these teams are located within a few steps of each other. The result of this setup is that investment themes and ideas aren’t developed in isolation, but rather they are identified, researched, tested, and shared across the platform. When coupled with the firm’s continued commitment to developing its proprietary data and risk tools, Fidelity’s integrated approach has served its fundholders well. 

A few of our Medalist recommendations include Silver-rated Fidelity Mortgage Securities, which is helmed by firm veteran Franco Castagliuolo and his comanager Sean Corcoran. This strategy focuses primarily on government fare but has held anywhere from 10% to 20% in nongovernment bonds in recent years. It is conservatively run relative to many government mortgage funds, but over the longer term, its lower-priced shares have kept pace with its Bloomberg Barclays U.S. Mortgage Backed Securities Index and the strategy has held up well relative to peers over periods of credit market stress.

Another offering in Fidelity’s taxable universe is Silver-rated Fidelity Limited-Term Bond, which is managed by firm veteran Rob Galusza with the help of comanagers David Prothro and Dave DeBiase. Relative to its typical peer in the short-term bond category, this offering tends to have a modestly longer duration and holds a persistent overweight in corporate credit, including up to 5% in below-investment-grade bonds. This puts it at a disadvantage during periods when interest rates spike and credit sells off, but its long-term advantages have stemmed from value-added bottom-up security recommendations from analysts, and an emphasis on risk management, which is critical at the short end of the yield curve.

Gold-rated Fidelity Total Bond is coordinated up top by long-tenured manager Ford O’Neil, who, in collaboration with a roster of comanagers that have helmed sector-specific strategies at the firm, makes use of the firm’s aforementioned resources to glean investment ideas and build an informed view of potential opportunities for this flexible core-plus bond strategy that can own high yield and emerging-market debt in addition to the investment-grade sectors in its Bloomberg Barclays U.S. Aggregate Bond Index. Over longer time periods, the strategy’s returns are compelling relative to its index and typical intermediate core-plus peer from an absolute and risk-adjusted perspective.