Fidelity launches bond funds to weather uncertain markets

Selasa, 12 November 2013

Beranda » » Fidelity launches bond funds to weather uncertain markets

Fidelity launches bond funds to weather uncertain markets

By Trevor Hunnicutt

Nov 12, 2013 @ 10:44 am (Updated 1:50 pm) EST

E-mail

Reprints

Fidelity Investments is offering clients a new way to prosper in uncertain debt markets.

The mutual fund giant on Tuesday announced the launch of three bond funds that might allow investors to achieve better outcomes despite investors driving money out of bonds, particularly federal government debt.

The three Fidelity offerings – Short Duration High Income Bond Fund (FSAHX), Limited Term Bond Fund (FJRLX) and Conservative Income Municipal Bond Fund (FCRDX for retail investors and FMNDX for the adviser share class) – invest in different types of debt that mature relatively quickly.

Bond prices decrease as interest rates rise. But short-term bonds are generally less sensitive to interest rate movement than longer-duration debt instruments.

Still, the category offers a broad range of alternatives to government debt at different levels of possible risk.

Fidelity’s latest set of offerings includes a relatively conservative fund, FCRDX, that invests mostly in high-quality municipal debt and money-market securities, as well as a high-income focused product, FSAHX, that typically invests in “junk” or lower-credit corporate debt. The third fund, FJRLX, includes exposure to asset-backed securities and government agency mortgages. Annual expenses on the products range from 0.40% to 0.80% of the asset’s value.

Excluding government debt, shorter-term products have weathered the bond market stress well. Ultra-short and other short-term bond funds – excluding municipal debt – had taken in $30.6 billion in new money from clients year-to-date as of Oct. 31, according to data provided by Morningstar Inc. Short-term municipal bonds received $1.1 billion in new money over the same period.

Putnam Investments Inc., Wells Fargo & Co. and Dimensional Fund Advisors LP are among the other fund sponsors that have rolled out new products this year for the $466.5 billion short-duration-bond-fund market. Fidelity now offers a total of 13 short-duration funds with more than $34 billion in assets, according to the fund sponsor.

“Fidelity’s fixed-income team has generally been very strong. They’ve basically taken a pretty conservative stance across their mutual funds so they’ve tended to hold up well,” said Katie Rushkewicz Reichart, a Morningstar analyst who tracks the firm.

The market for debt is shaped in part by government policy. The Federal Reserve is buying $85 billion in bonds each month, and officials said they will not slow those purchases until the economy sees further improvement.

But an eventual decision by the Fed to taper asset purchases could cause long-term rates to rise even if policymakers maintain a record-low federal funds rate and other accommodative monetary policies. That potential has weighed on the markets, driving billions out of government debt this year and into higher-yielding assets from other debt to stocks.

“These kinds of products provide a level of comfort and stability that longer-duration products may not in a volatile-interest-rate environment,” Charlie Morrison, president of Fidelity’s Fixed Income division, said in an interview.

But some bond watchers say that investors looking to time the market with short-duration funds should think again.

“The opportunity to shorten duration, if one was going to take a tactical approach to this, was six to 18 months ago, when the 10-year note was below 2%,” said Robert Tipp, chief investment strategist for Prudential Fixed Income in Newark, N.J. Ten-year U.S. Treasury yields were at 2.77% at midday Tuesday, according to Bloomberg. “I would say the horse is out of the barn,” he said.

Still, Mr. Tipp said that short-duration bond exposure was likely to deliver higher returns than cash.

Like what you've read?

Continue Reading

Fidelity late but not too late with new ETFs

Mutual fund giant Fidelity Investments is set to launch a series of exchange-traded funds, the firm's first in 10 years. Is it too little, too late? Advisers say no, but they're not overly excited, either.