At long last, "there's income back in fixed income," says Fidelity Strategic Income (FADMX) fund co-manager Ford O'Neil. The Bloomberg Aggregate U.S. Bond index now yields better than 5%, which "makes us optimistic about this asset class," he adds.
The backdrop, of course, is the terrible year that bonds had in 2022, as the Federal Reserve raised interest rates. (Bond prices and interest rates move in opposite directions.) Strategic Income – a member of the Kiplinger 25, our favorite no-load mutual funds – lost 11% that year, compared with a 13% decline in the Agg index.
But over the past 12 months, the multisector bond fund has excelled, with a 4.0% return, outpacing the Agg index and its peers.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Strategic Income invests in bonds from multiple sectors, keeping in mind a benchmark of 45% of assets in high-yield bonds (debt that's rated double-B to triple-C), 30% in U.S. government and other high-quality issues, 15% in emerging-markets debt, and 10% in IOUs from developed foreign countries. The lead managers, O'Neil and Adam Kramer, decide how much to devote to each sector; other Fidelity bond sector specialists pick the securities.
Over the past 12 months, the managers tilted toward high-yield bonds, specifically corporate bonds and leveraged loans (short- to medium-term loans issued to firms with below-investment-grade ratings). That shift paid off as both bond sectors posted double-digit returns over the past year. Emerging-markets debt and the fund's foreign developed bond sleeve performed well, too, beating their respective benchmarks. But the fund's U.S. government debt was flat and a bit of a drag on returns.
These days, the managers are choosing to hew closely to their benchmark's weighting. "There's a wide range of macroeconomic outcomes that could unfold in the next six to 12 months and we would prefer a neutral position," he says. In 2024, he adds, smart security selection will matter more than asset allocation.
Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related content
- Best Bond ETFs to Buy Now
- Many Mutual Funds Are Converting To ETFs: What To Know
- Should You Buy Bonds Now? What To Consider
-
Food, Gas Prices to Spike if Trump Levies 25% Tariffs on Canada and MexicoTariffs The neighboring countries are major exporters of fresh food, auto, gas, and industrial supplies to the U.S.
-
This T. Rowe Price Bond Fund Holds Up Well as Interest Rates ChangeWhile interest rates have come down, this T. Rowe Price floating-rate fund still sports an attractive yield.
-
This T. Rowe Price Bond Fund Holds Up Well as Interest Rates Change
While interest rates have come down, this T. Rowe Price floating-rate fund still sports an attractive yield.
-
2025 Stocks Forecast: What Stock Pros Expect This YearThe jury's out on the 2025 stocks forecast: will investors enjoy higher interest rates that dampen the market, or another year of double-digit returns?
-
Gold Investments Continue to ShineHere are some of the best reasons why you should include at least a little gold in your portfolio.
-
The Pros and Cons of Investing in Private DebtWhat to know about investing in private debt, including how it works and where to invest.
-
Stocks and Funds for the Infrastructure Building BoomInvestors should consider buying these stocks and funds to make the most of the U.S. industrial renaissance.
-
Is Your Investment App Making You Trade Too Much?Investment app and website users are being warned to watch out for 'game-like' features that can encourage impulsive trading — and reduce long-term returns.
-
How to Hedge Against TariffsDonald Trump is expected to raise tariffs on imports in the coming months which could have a big impact on public companies. Here's how investors can prepare.
-
My Top 10 Stock Picks for 2025Each year, we ask an expert to pick 10 stocks that have the potential to beat the market over the next 12 months. Here are his choices for 2025.
