A Deep Bench Bodes Well for Fidelity Intermediate Municipal Income

The last time we checked in with Fidelity Intermediate Municipal Income (symbol FLTMX), longtime manager Mark Sommer had just retired. Now, Kevin Ramundo, comanager since 2010, is retiring, too, in June. “I’m going to spend time hiking the Appalachian trail and skiing,” he says. Fund manager changes make us wary. But this fund is run by a team of mostly longtime members who follow a well-honed process.

The team, which includes comanagers Cormac Cullen, Michael Maka, Elizah McLaughlin and Ramundo, along with three traders and 20-odd analysts, discuss and debate every position in the fund. “While we don’t always agree,” says McLaughlin, “our fund decisions are fully vetted by the entire team.” They look for reasonably priced bonds with stable finances. Managing risk is a priority, too, and the team uses a proprietary tool to monitor the portfolio.

Municipal bonds, which pay interest that is exempt from federal and sometimes state income taxes, have had a great run in recent years. The 2017 tax law included changes specific to munis that crimped supply just as investors began to clamor for the bonds. “There’s an imbalance in supply and demand,” says Cullen, and that has helped prop up muni bond prices.

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Over the past 12 months, Intermediate Muni Income returned 7.4%. That’s a solid absolute return for the fund. But it lags Bloom­berg Barclays Municipal index and the typical intermediate-term bond fund. Ramundo says low volatility has led to narrowing gaps in muni-fund returns. “The differences in performance among the top funds remain pretty tight,” he says.

But Intermediate Muni Income tends to shine in down markets. In 2013, the typical intermediate-term muni fund lost 2.3%; Fidelity Intermediate Muni Income beat 77% of its competition, with a 1.5% loss.

After strong performances two years in a row, the fund’s managers are cautiously optimistic. Munis are richly valued, says Cullen. But steady, low interest rates and a strong U.S. economy, coupled with strong demand for munis and tight supply, make it “reasonable to expect continued support for munis.”