6 Fidelity Bond Funds To Invest In 2021

Bond funds are one of the many options you have to balance your portfolio and mitigate your risk while also investing in stocks. When bond yields fell last year, investors included fixed-income assets to lower volatility and pad their income. 

Mutual funds can reduce investor risk because they contain thousands of bonds — which means a more diverse portfolio. “Bonds are a great addition to any portfolio since they dampen the volatility of one’s equity holdings,” Derek Horstmeyer, George Mason University assistant finance professor, told US News My Money. “This is great for risk reduction during those times of market drops or market panics.”

Below are US News My Money’s top choices for Fidelity bond funds. These options don’t come with a minimum investment amount, making them more convenient if you want to incorporate them into your retirement plan.

Fidelity Floating Rate High Income Fund (FFRHX)

According to Horstymeyer, the Fidelity Floating Rate High Income Fund is a “great one if you are worried about rates going up, since this floating rate bond fund will pay more in coupons as rates go up. If you think the reopening of the economy will lead to rates going up, this fund will insulate you from those rates going up.”

This option has a 1.67% one-year return, a 3.38% three-year return, and a 4.76% five-year return (as of December 31, 2020). However, at 0.68%, the annual expense rate is relatively steep.

Fidelity Investment Grade Bond Funds (FBNDX)

The Fidelity Investment Grade Bond Funds focus on government and corporate bonds. Each of these bonds has a low chance of default, making them ideal for investors with minimal risk tolerance. It has a one-year return of 9.9%, a three-return of 6.34%, and a five-year return of 5.65%. The expense ratio is 0.45%. 

According to Stuart Michelson, a Stetson University professor of Finance, investing in both bond funds and exchange-traded funds (ETFs) gives investors a significant edge over individual bond investments. 

Fidelity Intermediate Treasury Bond Index Fund (FUAMX)

This fund is derived from the Bloomberg Barclays 5-10 Year US Treasury Bond Index, has a history of robust returns and offers an expense ratio of only 0.03%. Currently, it is overseen by two experienced portfolio managers, Brandon Bettencourt and Richard Munclinger. 

The FUAMX has a one-year return of 9.1%, a three-year return of 5.81%, and a five-year return of 4.12%. According to Michelson, “The outlook for bonds going forward into 2021 appears to be increasing yields and coupons for newly issued bonds and decreasing pricing on outstanding bonds.”

Additionally, Sonoma Wealth Advisors managing principal Daren Blonski notes that Treasurys can be an excellent way to supplement a portfolio thanks to their low-risk nature, federal guarantee, and “healthy” returns.

Fidelity US Bond Index Fund (FXNAX)

FXNAX draws on the Bloomberg Barclays US Aggregate Bond Index, which contains a range of investment and government bonds. The Fidelity US Bond Index fund is advantageous for those looking to hold this asset in a taxable account, Horstmeyer explained. 

This fund’s expense ratio is 0.025% and touts minimal turnover, meaning investors receive yearly payouts from low taxes. You can expect a one-year return of 7.8%, a three-year return of 5.37%, and a five-year return of 4.41%.

Fidelity Capital & Income Fund (FAGIX)

This fund is ideal if you’re an investor who wants to keep your assets in a tax-advantaged account like your 401(k) or IRA. Hortsmeyer cautioned that while it includes bonds with competitive returns, it comes at a moderately higher risk since the businesses have lower-quality credit. 

As an actively managed bond fund, the FAGIX has a comparatively steep expense ratio (0.67%), but it boasts a one-year return of 10.24%, a three-year return of 7.3%, and a five-year return of 8.84%.

Fidelity GNMA Fund (FGMNX)

This Fidelity bond fund includes Ginnie Mae mortgage-related securities insured by loans backed by the Federal Housing Administration and the Department of Veterans Affairs. Altogether, the FGMNX boasts assets totaling $4.3 billion, a one-year return of 3.74%, a three-year return of 3.33%, and a five-year return of 2.67%. As an actively managed fund, its expense ratio is 0.45%. 

According to Morningstar analyst Sam Kulahan, portfolio managers Franco Castagliuolo and Sean Corcoran “avoid interest rate bets and instead focus on seeking out mispriced corners of the Ginnie Mae market and picking their spots on the yield curve. They benefit from Fidelity’s significant investments in a set of proprietary quantitative tools that help them identify and track key characteristics of underlying mortgage pools that influence how fast borrowers are likely to prepay and thus their cash flows and valuations.”

 

Source
  • Chang, Ellen. “7 Of the Best Fidelity Bond Funds.” U.S. News & World Report, U.S. News & World Report, 5 Jan. 2021, money.usnews.com/investing/bonds/slideshows/best-fidelity-bond-funds.

 

 

Ian Schindler