Fidelity's Corporate Debt Mutual Funds: What You Need To Know

Fidelity Investments is a world leader in mutual funds, offering a wide range of investment options, including mutual funds that invest in corporate debt. With over 70 years of experience in the industry, Fidelity has the tools and expertise to help investors build diversified portfolios that match their investment goals and risk tolerance.

Fidelity's mutual funds provide investors with access to a global network of analysts and one of the largest research departments in the industry. This enables investors to tap into a broad spectrum of investment opportunities across different regions and sectors.

In terms of corporate debt, Fidelity offers corporate bond funds that invest in bonds issued by corporations. These funds provide higher yields and risks compared to government and municipal bonds, and the income is subject to federal and state taxes.

Additionally, Fidelity's Total Bond Fund is a core fixed-income fund that seeks to provide income and protection from stock market volatility. This fund invests in a diverse range of fixed-income securities, including investment-grade bonds and below-investment-grade securities, to enhance return potential while managing risk.

Fidelity also offers other types of mutual funds, such as stock, money market, and target-date funds, providing investors with a variety of options to diversify their portfolios and meet their investment objectives.

Income funds

Fidelity offers a range of income funds, including the Fidelity Equity Dividend Income Fund (FEQTX), the Fidelity Equity-Income Fund (FEQIX), the Fidelity Growth & Income Portfolio Fund (FGRIX), and the Fidelity Dividend Growth Fund (FDGFX). These funds invest in a combination of growth- and value-oriented stocks, with a focus on providing income and the potential for capital appreciation.

Additionally, Fidelity offers a range of other mutual funds that invest in corporate debt, including corporate bond funds, diversified/opportunistic funds, and high-yield bond funds. These funds provide exposure to a diverse range of fixed-income sectors and can be used to customize an investment portfolio based on an investor's specific needs and risk tolerance.

Diversified/opportunistic funds

The Fidelity Total Bond Fund is an example of a diversified/opportunistic fund. It is an actively managed fixed-income strategy that invests in a broad spectrum of investment-grade securities, with up to 20% in below-investment-grade sectors such as high-yield corporates, emerging-market debt, and leveraged loans. This diverse allocation helps the fund add value in a variety of markets. The fund seeks to balance return potential against risk, providing a conservative experience in line with an investor's expectations of a core bond fund.

The fund focuses on high-quality investments, with at least 80% of its assets in investment-grade bonds. It also offers enhanced return potential by investing up to 20% of its assets in below-investment-grade securities. The fund's co-managers, Ford O'Neil and Celso Munoz, aim to identify opportunities in fixed-income markets, even during challenging periods.

The Fidelity Total Bond Fund has received Morningstar's highest level of commendation, the Morningstar Medalist Rating, as of May 31, 2024. It was also recognised by Morningstar for its outstanding portfolio management, with Ford O'Neil nominated for the 2024 U.S. Morningstar Outstanding Portfolio Manager Award.

In addition to the Fidelity Total Bond Fund, Fidelity offers other diversified/opportunistic funds as part of its mutual fund offerings. These funds provide investors with exposure to a diverse range of fixed-income sectors and the potential for capital appreciation.

High yield bond funds

High-yield bond funds, also known as non-investment grade bond funds, are a type of mutual fund that primarily invests in corporate bonds with lower credit ratings. These bonds are issued by companies that are considered to have a greater risk of defaulting on their debt obligations. As a result, these bonds offer higher coupon rates and the potential for higher returns to compensate for the increased risk.

Fidelity, a world leader in mutual funds, offers several high-yield bond fund options to its investors. Here are some of the key features and benefits of investing in high-yield bond funds with Fidelity:

• Diversification: Fidelity's high-yield bond funds provide exposure to a diverse range of corporate bonds, reducing the risk associated with investing in a single company or industry.
• Professional Management: Fidelity's team of experienced fund managers conduct extensive research and employ strategies to balance risk and return, helping investors navigate the complex world of high-yield bonds.
• Enhanced Returns: High-yield bond funds offer the potential for higher returns compared to investment-grade bonds. The higher coupon rates of these bonds can generate additional investment income for investors.
• Access to Emerging Companies: High-yield bond funds provide an opportunity to invest in emerging companies that are seeking working capital for expansion or acquisitions. This allows investors to get in on the ground floor of potentially successful businesses.
• Wide Range of Options: Fidelity offers a variety of high-yield bond funds, such as the Fidelity High Income Fund (SPHIX), Fidelity Focused High Income Fund (FHIFX), and Fidelity Short Duration High Income Fund (FSAHX), allowing investors to choose the fund that best aligns with their risk tolerance and investment goals.
• Active Bond Fund Options: Some of Fidelity's high-yield bond funds, like the Fidelity Capital & Income Fund (FAGIX), take an "unconstrained" approach, allowing them to invest in higher-risk fixed-income securities, including defaulted bonds and junk bonds. This strategy has historically helped these funds outperform their benchmarks.
• Strong Performance: Many of Fidelity's high-yield bond funds have a track record of strong performance, outpacing their peers and earning accolades from Morningstar and other rating agencies.
• Regular Income: High-yield bond funds provide a steady stream of income through regular coupon payments, making them attractive to investors seeking consistent cash flows.

While high-yield bond funds offer the potential for higher returns, it's important to remember that they also carry greater risks. These risks include default risk, credit risk, business cycle risk, call risk, liquidity risk, and interest rate risk. Investors should carefully consider their risk tolerance and conduct thorough research before investing in high-yield bond funds.

International bond funds

Fidelity International Bond Index Fund (FBIIX) is one such fund that offers investors exposure to international bonds. The fund has a Morningstar rating and invests in a broad range of investment-grade securities, with up to 20% in below-investment-grade sectors such as high-yield corporates, emerging-market debt, and leveraged loans.

Fidelity also offers the Fidelity Total Bond Fund (FTBFX), which is a core fixed-income fund for investors seeking income and protection from stock market volatility. This fund has a Morningstar Medalist Rating and invests in a wide selection of fixed-income securities, with a focus on high-quality investment-grade bonds.

The Fidelity Series International Developed Markets Bond Index Fund (FSTQX) is another option for investors looking for international bond exposure.

With over 50 years of international asset management experience and $148 billion in international equity assets, Fidelity has a broad set of investment choices to tailor an international exposure for its clients.

Municipal bond funds

Municipal bonds, or "munis", are debt securities issued by states, cities, counties, and other governmental entities. They are used to fund day-to-day obligations and finance capital projects such as building schools, highways, or sewer systems. When you purchase a municipal bond, you are lending money to the bond issuer in exchange for regular interest payments and the return of your original investment, known as the "principal", at maturity. Municipal bonds typically have maturity dates years in the future, with short-term bonds maturing in one to three years, and long-term bonds maturing in over a decade.

The interest on municipal bonds is generally exempt from federal income tax and may also be exempt from state and local taxes if you reside in the state where the bond is issued. This makes municipal bonds attractive for investors seeking a steady stream of income payments and capital preservation, with a lower risk appetite compared to stock investors. Due to the tax benefits, municipal bonds usually offer a lower interest rate than taxable fixed-income securities like corporate bonds.

The two most common types of municipal bonds are general obligation bonds and revenue bonds. General obligation bonds are issued by states, cities, or counties and are backed by the "full faith and credit" of the issuer, which includes the power to tax residents to pay bondholders. Revenue bonds, on the other hand, are backed by revenues from specific projects or sources, such as highway tolls or lease fees. Some revenue bonds are "non-recourse", meaning that bondholders do not have a claim on the underlying revenue source if the revenue stream dries up.

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