7 of the Best Fidelity Bond Funds

Bring balance to your portfolio.

Bond funds can be one strategy to add balance and lower risk in a portfolio that also includes equities. While bond yields sank in 2020, adding fixed-income assets is one method to decrease volatility and provide income. Mutual funds can lower the amount of risk faced by investors since they include thousands of bonds and provide diversification. “Bonds are a great addition to any portfolio since they dampen the volatility of one’s equity holdings,” says Derek Horstmeyer, assistant finance professor at George Mason University. “This is great for risk reduction during those times of market drops or market panics.” Here are seven Fidelity bond funds to consider. They do not require a minimum amount of money to invest in them, so you can easily add them in a 401(k) plan or individual retirement account.

Fidelity Floating Rate High Income Fund (ticker: FFRHX)

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,” Horstmeyer says. “If you think the reopening of the economy will lead to rates going up, this fund will insulate you from those rates going up.” The fund’s one-year return is 1.67%, while its three-year return is 3.38% and five-year return is 4.76%, as of Dec. 31. The fund has a slightly high annual expense ratio of 0.68%, or $68 for every $10,000 invested.

Fidelity Investment Grade Bond Fund (FBNDX)

The Fidelity Investment Grade Bond Fund invests in government and investment-grade corporate bonds. Both types of bonds are less likely to default, making them a safer asset for investors. The fund’s one-year return is 9.9%, while its three-year return is 6.34% and five-year return is 5.65%. FBNDX comes with an expense ratio of 0.45%. Investing in bond funds and bond exchange-traded funds, or ETFs, offers huge advantages over investing in individual bonds, says Stuart Michelson, finance professor at Stetson University in DeLand, Florida. A portfolio of bonds offers the advantage of diversification of risk and return rather than taking the full nondiversified risk of investing in individual bonds, he says.

Fidelity Intermediate Treasury Bond Index Fund (FUAMX)

The Fidelity Intermediate Treasury Bond Index Fund is based on the Bloomberg Barclays 5-10 Year U.S. Treasury Bond Index. The fund’s track record is strong and it offers a low expense ratio of 0.03%. This index fund is actively managed by portfolio manager Brandon Bettencourt, who began in 2014, and Richard Munclinger, who was added in October 2020. The fund’s one-year return is 9.1%, while its three-year return is 5.81% and five-year return is 4.12%. “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,” Michelson says. Treasurys can be a good addition to a portfolio since they are low-risk assets and backed by the federal government, but they still generate “healthy” investment returns, says Daren Blonski, managing principal of Sonoma Wealth Advisors.

Fidelity U.S. Bond Index Fund (FXNAX)

The Fidelity U.S. Bond Index Fund is based on the Bloomberg Barclays U.S. Aggregate Bond Index that includes various investment-grade and government bonds. This fund is beneficial for investors who own it in a taxable account such as a brokerage account, Horstmeyer says. The fund offers a low expense ratio of 0.025% and also low turnover, which means low taxes are paid annually, he says. The fund’s one-year return is 7.8%, while its three-year return is 5.37% and five-year return is 4.41%.

Fidelity Capital & Income Fund (FAGIX)

The Fidelity Capital & Income Fund is one option for investors who plan to allocate money into a tax-sheltered account such as a 401(k) or IRA. The fund owns high-yield bonds that generate slightly more risk because the companies have a lower credit quality, Horstmeyer says. The expense ratio is high, at 0.67%, because it is an actively managed fund. The fund’s one-year return is 10.24%, while its three-year return is 7.3% and five-year return is 8.84%.

Fidelity GNMA Fund (FGMNX)

The Fidelity GNMA Fund holds mortgage securities from Ginnie Mae, which are backed by loans that are insured by the Federal Housing Administration and Department of Veterans Affairs. FGMNX has total assets of $4.3 billion. The fund’s one-year return is 3.74%, while its three-year return is 3.33% and five-year reurn is 2.67%. It comes with an expense ratio of 0.45% as it is actively managed by portfolio managers Franco Castagliuolo and Sean Corcoran. The managers “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,” wrote Morningstar analyst Sam Kulahan. “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.”

Fidelity Focused High Income Fund (FHIFX)

The Fidelity Focused High Income Fund invests in corporate bonds. Its top holdings include debt of Centene Corp. (CNC), Cheniere Energy (LNG) and Aramark (ARMK). The fund allocates around 15% to energy bonds and 10% or so to telecommunications bonds. It’s important to understand that corporate bonds are riskier than government bonds such as Treasurys and municipal bonds. Since 2018, the fund has been managed by Michael Weaver and Alexandre Karam. The fund’s one-year return is 4.5%, while its three-year return is 5.41% and five-year return is 6.81%. The expense ratio is 0.78%.

Seven of the best Fidelity bond funds:

— Fidelity Floating Rate High Income Fund (FFRHX)

— Fidelity Investment Grade Bond Fund (FBNDX)

— Fidelity Intermediate Treasury Bond Index Fund (FUAMX)

— Fidelity U.S. Bond Index Fund (FXNAX)

— Fidelity Capital & Income Fund (FAGIX)

— Fidelity GNMA Fund (FGMNX)

— Fidelity Focused High Income Fund (FHIFX)

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7 of the Best Fidelity Bond Funds originally appeared on usnews.com

Update 01/05/21: This story was published at an earlier date and has been updated with new information.

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