Fidelity Bond Fund Shares Successful Strategy
Flexibility is at a premium for bond fund managers in the current low-yield environment. Never before has the ability to "go anywhere" been so important, said Chris Pariseault, institutional portfolio manager at Fidelity Investments.
"It's been very difficult for fixed income managers to generate returns that meet investor expectations, especially in defined benefit plans where return bogeys may hover around 7% or 8%," said Pariseault. "Being able to loosen the reins and have the ability to go beyond the benchmark into areas like high yield, emerging market debt and leveraged loans can make all the difference."
Pariseault works closely with the portfolio managers of Fidelity Total Bond Fund (FTBFX) - Get Report , which is up 7.2% thus far in 2016, according to Morningstar. The $24.4 billion fund has returned an average of 4.5% annually over the past three years, outpacing 83% of its peers in Morningstar's intermediate-term bond fund category. The Fidelity Total Bond fund sports a 3% trailing twelve month yield, according to Morningstar.
Being able to go anywhere on the yield curve is helpful as well, according to Pariseault. He said the Fidelity Total Bond Fund is employing a barbell strategy, with most exposure on either the very short end or the very long end. In his view, the intermediate part of the yield curve is most susceptible to interest rate increases.
"While short-term rates could head higher, those securities mature relatively quickly, providing reinvestment opportunities at higher rates," according to Pariseault. "Meanwhile, the yields of longer Treasury bonds continue to be much higher than those of bonds from other developed nations."
Pariseault said it is hard to know when the hot Treasury market will cool down. Right now the benchmark 10-year Treasury is yielding 1.5% and Pariseault said it could move lower if foreign buying continues to be robust.
Pariseault said he has been a "little light" on emerging market debt due to worries about China's economic growth. But since he can go anywhere, he has been nibbling at high yield bonds.
"We think there is room to run in high yield, you just have to pick your spots in credit and be selective with the right securities," said Pariseault.