The top five holdings of this conservative income fund are Tmcc Mstr 1wkl+35 12/06/17 P/P(1.33% of assets); Sumitomo Mitsui Bkg FRN (1.07%); Australia & New Zeala Bkg FRN (1.00%); Bk Amer FRN (0.94%); and Ing Bk Nv 144A FRN (0.93%).
Fidelity Conservative Income Bond (FCONX)
From Fidelity Monitor & Insight
Income Model and VIP Income Models have several objectives. The first is to slightly reduce their respective sensitivities to rising short-term interest rates. Indeed, the Fed is likely to raise rates this month, and three times next year. But should the economy pick up steam and force inflation a bit higher, the risk of even more hikes become greater. As a consequence, we’re moving funds in to the less rate-sensitive Conservative Income Bond (FCONX) (which is essentially a money market fund on steroids). Note that a comparable trade in the VIP (Annuity) Model is not possible given the paucity of fund options.
Fidelity Conservative Income Bond is an ultra-short (duration of less than two months) bond fund that, in many respects, resembles the money market funds of old, before new government regulations forced certain money market funds (such as the former Cash Reserves, now Gov’t Cash Reserves) to focus only on government debt.
Corporate debt is now up to nearly 90% of assets as the management team sees a strong economy with little default risk. Financials (around 65%), with an emphasis on banks, are the dominant area. The fund’s yield advantage over money markets (1.17% vs. 0.77% for Gov’t Cash Reserves), has decreased somewhat from a year ago (about 40 basis points down from 63), but it remains an attractive alternative.
With more rate hikes likely in 2018, shorter-duration bonds could suffer—especially those focused on government debt. But with a strong economy and an ultra-short duration, this fund’s credit risk is low, making it a lower risk alternative to shorter term funds. Yes, you give up a little yield, but the added safety from rising rates is worth it.
Jack Bowers, John M. Boyd and John Bonnanzio, Fidelity Monitor & Insight, www.fidelitymonitor.com, 800-397-3094, Fidelity Monitor & Insight, December 2017