Fidelity Investment Grade Bond Earns Top Honors

Increased conviction in Fidelity Investment Grade Bond’s FBNDX managers lifted its People Pillar rating to High from Above Average and its Morningstar Medalist Rating for all share classes to Gold from Silver in August 2023.

Three impressive managers underpin this strategy’s appeal. Jeff Moore, a 28-year Fidelity veteran, has led the fund since late 2004, and another Fidelity stalwart, Michael Plage, joined him in late 2016. Sean Corcoran is the management team’s newest member, having joined in June 2022. Fidelity’s deep fixed-income team of analysts, sector-specific experts, and numerous quantitative risk specialists and traders provides high-quality support.

The managers leverage their resources well and have shown an ability to adapt. Learning lessons from the 2008 credit crisis, Moore and his colleagues have adroitly adjusted sector allocations and yield-curve positioning when they see pockets of value. As a result, over the past decade through August 2023, the Z share class’ 2.0% annualized return landed it in the top decile of its intermediate core bond Morningstar Category peers.

Downgrades

Poor execution led to a Process Pillar downgrade to Below Average from Average for all-cap equity strategy Federated Hermes Kaufmann KAUFX and its sibling Federated Hermes Kaufmann Large Cap KLCIX. All share classes of the former receive a Morningstar Medalist Rating of Negative, while the most expensive shares of the latter drop to Negative from Neutral.

Both strategies have suffered from missteps. They’ve been consistently underweight technology stocks over the past decade—sometimes by wide margins relative to their respective benchmarks. Large bets outside of the United States and tendencies to have double-digit cash stakes and flirt with big-picture macroeconomic calls in the all-cap fund have also hurt. Over the 10-year period through August 2023, the 9.4% return for Federated Hermes Kaufmann’s R shares lagged nearly 70% of its mid-growth category peers. Meanwhile, the 11.4% return for Federated Hermes Kaufmann Large Cap’s institutional shares over the same period was worse than 80% of its large-growth category peers.

Meanwhile, the team has changed a bit recently, and it could see more changes in the near future. Managers Jonathan Art and Vivian Wohl left abruptly in 2021 and 2022, respectively, and team patriarch Hans Utsch, who’s in his mid-80s, still exercises significant sway, particularly over the all-cap fund.

These concerns, coupled with high expense ratios, make these Kaufmann strategies less appealing.