Kiplinger just released its picks for the best Fidelity funds for income investors. And after sifting through the featured funds, I can tell you it’s a good list — but one that I would cut in half and still be happy with.
Before I highlight my top three, you should know that all of the Kiplinger finalists are noteworthy, and that its list was not just a collection of the highest-yielding Fidelity funds, but rather a diverse listing of funds with the potential to do well in a climate of rising interest rates.
One fund that slipped through my final cut (but deserving of an honorable mention) is Fidelity Growth and Income Portfolio (FGRIX). FGRIX has a 30-day yield is 1.8%. This is lower than that of the S&P 500 Index, which is 2%. But the author of Kiplinger’s article, Carolyn Bigda, states, “Rather than chasing the highest-yielding stocks, the fund is committed to investing in companies that can increase both earnings and dividends over time.”
While FGRIX can be a good choice for investors looking to increase yield as rates are rising, many income investors are searching for a current yield, which means now rather than later.
And with that, I give you my favorite three picks among Kiplinger’s best Fidelity funds for income investors:
Best Fidelity Funds for Income: Fidelity Floating Rate High Income (FFRHX)
SEC Yield: 3.7%
Expenses: 0.69%
Minimum Initial Investment: $2,500
If you are looking for a fund that can produce high yields and potentially minimize price downside in a rising interest-rate environment, Fidelity Floating Rate High Income (FFRHX) is a fine choice.
These bonds — also called bank loans, floating-rate notes or “floaters” — adjust on a regular basis, and the respective interest rate is tied to a benchmark, such as the U.S. Treasury bill rate, the Libor or the prime rate.
Unlike conventional bonds, floating-rate bonds may actually appreciate during periods of rising interest rates; however, they tend to invest in low-quality bank loans, which ratchets up the downside potential in a bear market.
For investors attracted to floating-rate bond funds, but who are not comfortable with the price risk, FFRHX is more conservative than the average bank loan mutual fund. Over half of FFRHX’s portfolio consists of bonds with credit quality above a “B” rating, whereas the average bank loan fund’s holdings are rated at “B” or below.
Best Fidelity Funds for Income: Fidelity Real Estate Income (FRIFX)
SEC Yield: 4.6%
Expenses: 0.83%
Minimum Initial Investment: $2,500
Fidelity Real Estate Income (FRIFX) offers a blend of stocks and bonds for an outside-the-box choice for investors seeking income.
While real estate and bond funds are in the red for the year on average, FRIFX has an impressive 1.74% year-to-date gain to add to its healthy yield of 4.6%. The return thus far in 2015 puts FRIFX ahead of 90% of the real estate fund category.
With that said, the bond portion of the portfolio — which was recently about 42% of the fund’s assets, compared to about 6% for the average real estate fund — will be a drag on performance in years where real estate stocks are significantly outperforming real estate bonds.
But investors looking for high yields can now consider Fidelity Real Estate Income a part of a diversified portfolio.
Best Fidelity Funds for Income: Fidelity Total Bond (FTBFX)
SEC Yield: 3%
Expenses: 0.45%
Minimum Initial Investment: $2,500
Investors looking for a bond fund that can work well as a long-term core fixed income holding while providing decent yields will like Fidelity Total Bond (FTBFX).
The lead fund manager, Ford E. O’Neil, has been at the helm of the Fidelity Total Bond portfolio since 2004 and has done a fine job of balancing risk with yield.
To capture yield, FTBFX holds bonds of a lower credit quality than a fund tracking the Barclays U.S. Aggregate Bond Index. Despite this, FTBFX has managed to outperform the index on a long-term basis, as evidenced by the 10-year annualized return of 5.1%, which is half a percentage point ahead of the index and ahead of nearly 80% of the intermediate-term bond fund category.
For a full list of Kiplinger’s picks, you can check out their list of best Fidelity funds for income investors.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.
