Investors need diversified portfolios that include not only stocks but also bonds and other assets. Mutual fund giant Fidelity Investments offers a wide range of different types of mutual funds, and its Fidelity Total Bond Fund (NASDAQMUTFUND: FTBFX) aims to provide broad exposure to the bond market through a no-load bond index approach. With more than $26 billion in assets, many see Fidelity Total Bond as a top choice for one-stop shopping for the fixed-income side of their portfolios. Below, we'll look more closely at the bond fund to see if it's right for you.
Fidelity Total Bond's performance
The Fidelity Total Bond Fund has produced solid long-term returns for investors. Over the past 10 years, the fund has produced an average annual return of 5.15%, which puts it in the top fifth of its peer group of similar mutual funds. The fund has outperformed its benchmarks by roughly a third to three-quarters of a percentage point. That might not sound like much, but in the bond market, those advantages add up.
As a bond fund, Fidelity Total Bond also gets judged on its income production. Bond yields have been low in recent years, and the fund's 30-day yield as calculated for the Securities and Exchange Commission is currently 2.73%. That's not ideal, but it's the same challenge that bond funds across the mutual fund universe are dealing with in the current bond market environment.
Fees and expenses at Fidelity Total Bond Fund
Fidelity Total Bond Fund's annual expenses are fairly reasonable. The current expense ratio is 0.45%, which is just over half what Morningstar calculates as the average among similar bond funds. Fidelity doesn't charge a sales load on Total Bond, and there are also no 12b-1 distribution or service fees that the fund charges.
Initial investment requirements are for $2,500 for standard accounts. IRA minimums are the same, but if you invest through a group retirement plan, a lower $500 minimum applies.
What Fidelity Total Bond Fund owns
Fidelity Total Bond Fund currently has more than 96% of its assets invested in bonds and similar investments, with just a small cash allocation making up the remainder. Government bonds, primarily within the U.S., make up almost 30% of the fund's overall allocation, but the fund has a 45% allocation to corporate bonds that happens to be significantly more than the weighting that one of its benchmarks gives to the corporate bond space. Mortgage-backed and other asset-backed securities make up about a fifth of the portfolio, and small exposure to more exotic types of investments gives Fidelity Bond Fund some spice to help boost its returns.
Who manages Fidelity Total Bond Fund?
Fidelity Total Bond Fund has a team of managers, with Ford O'Neil having helped manage the fund since 2004. O'Neil has been outspoken in providing color on the investment choices that the fund makes, with extensive commentary that can give investors valuable information about the fund's direction.
Is Fidelity Total Bond Fund a smart buy right now?
Bond funds in general face a tough time right now, because interest rates are low and appear to be starting to head upward. Rising rates can create huge capital losses for bond funds if they're not careful, but Fidelity Total Bond Fund is positioning itself to withstand those pressures by implementing a barbell strategy. That involves investing in bonds with the shortest maturities and with the longest maturities, avoiding securities in the middle of the maturity spectrum. O'Neil believes that the intermediate bond world has the most risk from rising rates right now.
In addition, Fidelity Total Bond makes sector-based bets in the corporate world. The fund benefited recently from strength in the financial sector, but now it has begun to shift toward industrial bonds, which it sees as undervalued. By looking for bargains, Fidelity Total Bond hopes to stay ahead of the pack and see gains when other investors hop onto its bandwagon.
Fidelity Total Bond Fund has a good track record of solid performance. It's not the only good bond fund out there, but it can play a useful role in your overall retirement savings portfolio.
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