When it comes to investment managers, few have the breadth of products that Fidelity does. There are literally hundreds of Fidelity mutual funds, ETFs and even annuity portfolios.
That huge product range — that spans active and passive strategies, domestic and international, broad-based and sector — makes Fidelity one of the best places to build an all-around investment portfolio. That’s doubly so once you consider that so many Fidelity funds feature either low costs, great managers or both.
There is one problem in deciding which Fidelity products to buy, though.
The sheer size of the Fidelity umbrella is so huge, how do you know which funds are worth your time (and more importantly, your hard-earned nest egg)?
In doing some of my own footwork, I’ve come across a number of Fidelity funds targeting income production that stand above the rest. Today, let me introduce you to these top-notch cash-generating plays:
Fidelity Funds to Buy for Income: Fidelity Real Estate Investment Portfolio (FRESX)
Expenses: 0.78%, or $78 annually per every $10,000 invested
Real estate is seen as a cornerstone to a healthy investment portfolio, providing inflation protection and income. While there are a few Fidelity funds that tackle this area of the market, my preference is the Fidelity Real Estate Investment Portfolio (MUTF:FRESX).
Fidelity Real Estate’s portfolio is, as most publicly traded vehicles are, not focused on actual real estate, but real estate investment trusts (REITs). These business structures are designed for owners and operators of real estate, and they’re given federal tax exemptions … in return for them kicking out at least 90% of their taxable income as dividends. Many equity REITs as a result yield between 3% and 7%.
FRESX bets on REITs and other real estate securities to try to provide a yield that exceeds the composite yield of the S&P 500 index, and it succeeds on that front, doling out 2.54% at the moment.
This fund’s portfolio is most concentrated in industrial/office REITs (33%), followed by residential (24%), retail (16%) and healthcare (9%). It’s also a fairly concentrated portfolio of 49 stocks, with the top 10 — including Public Storage (NYSE:PSA) and Prologis Inc (NYSE:PLD) — making up nearly half of FRESX’s assets. But this strategy has worked well, allowing the fund to outperform the broader Dow Jones U.S. Select Real Estate Securities Index over the prior one-, three-, five- and 10-year periods.
Fidelity Funds to Buy for Income: Fidelity Core Dividend ETF (FDVV)
While Vanguard and iShares are typically first to mind when it comes to exchange-traded funds, don’t discount Fidelity’s lineup of quality ETFs. Over the past few years, Fidelty has expanded to offer not just low-cost index ETFs, but also some excellent smart-beta plays as well.
A top ETF on this front is another income-related play, the Fidelity Core Dividend ETF (NYSEARCA:FDVV)
Fidelity Core Dividend is considered a smart-beta ETF, as it uses alternative indexing to craft its portfolio. The ETF’s index, the Fidelity Core Dividend Index, uses screens to invest in large- and mid-cap stocks that pay dividends. The screens don’t look for just current yield, but dividend growth as well. Stocks that continue to up their payouts over time have been traditionally the biggest driver of the market’s overall long-term returns.
FDVV allows investors to tap into that strategy.
The fund has done well since its inception in September 2016, producing a total return of nearly 11% that includes the ETF’s 3.5% annualized yield. Factor in its low expenses, and FDVV is one Fidelity fund that should be at the top of your list.
Fidelity Funds to Buy for Income: Fidelity Strategic Income Fund (FSICX)
These are strange times for fixed-income investors. Despite several rate hikes from the Federal Reserve, yields refuse to take the hint.
It takes a deft hand to navigate the rate environment and handle additional credit risks. For the management team at the helm of the Fidelity Strategic Income Fund (MUTF:FSICX), though, this isn’t a problem.
FSICX is considered a go-anywhere fund. That means its managers can own or buy whatever fixed-income securities they think are the best for the current operating environment. But the fund typically will allocate its assets among four broad categories, with the following weightings at “market neutral”:
- High yield (45%)
- U.S. government & investment-grade (25%)
- Foreign developed (15%)
- Emerging markets (15%)
The result is a great total return and high yield. Currently, FSICX yields nearly 3% and has managed to return 5.8% annually over the past 10 years. That’s not too shabby for a bond fund and outperforms standard bond indices.
Investors looking to spice up their fixed-income portfolios could do worse than FSICX and its 2.84% yield.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.