New Investment Opportunity in High-Yield Corporate Bonds?

Corporate bonds have experienced a volatile period since August of 2014, but the renewed demand for income producing investments and the strengthening of the U.S. economy makes high yield corporate bonds attractive again.

The Fidelity Capital and Income Fund (FAGIX) provides a great way to play this new trend. FAGIX, in spite of its name, is a high yield bond fund. The fund managers use a rigorous fundamental analysis to select investments. The chart shows that FAGIX broke out from a consolidation period, which lasted for six months. In our view, the 4.18% dividend, the potential for capital appreciation and the five star rating by Morningstar makes FAGIX an appealing investment choice.

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Read more about investment strategies involving the FAGIX fund at FidelitySignal.com

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Two Investment Strategies that can Help you to Take Advantage of Declining Interest Rates

Already low interest rates have prompted many market observers to call for the decline of interest rate sensitive investments when the New Year started in January, but the opposite happened. Long-term treasury yields dropped and continue to decline:

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As Treasury bond yields declined and the economy showed signs of improvement, investors have started to seek out high-yielding corporate bonds. The Fidelity Capital and Income Fund (FAGIX) is an excellent way to participate in this trend:

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Emerging market economies are known to experience cycles of boom and bust. The boom periods can be highly rewarding for investors by producing double or sometimes even triple digit gains, while the bust periods tend to make risk averse investors exit these markets and seek out low-risk investments.

Declining interest rates, market friendly Fed policies, slow and steady economic growth, increased risk tolerance by investors and renewed appetite for investments with outsized returns have created a new bull market in emerging market equities in late spring. Our favorite fund in this space is the Fidelity Emerging Markets Fund (FEMKX), which have produced stellar returns since its inception in 1990.

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Buy and sell signals for Fidelity funds are available at FidelitySignal.com

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Best Income Funds for 2014: The Fidelity Real Estate Income Fund is Turning Bullish

The chart below shows the inverse relationship between interest rates (e.g. TNX – 10-year treasury note yield) and U.S. bond investments (e.g. FBIDX – Fidelity U.S. Bond Index Fund): rising interest rates have created a bear market for bonds starting in May 2013. Since interest rates are expected to continue to rise, this trend leaves few good choices for investors who are looking for income.

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Source: FidelitySignal.com

One possible exception is high yielding corporate bonds. We highlighted the Fidelity Capital and Income Fund (FAGIX), as an excellent choice in the current market environment (see article from November 14, 2013). The chart below shows that FAGIX continues to perform well in 2014.

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Buy and sell signals are available at FidelitySignal.com

Today, we’d like to highlight the Fidelity Real Estate Income Fund (FRIFX), as another choice for income investors in 2014. FRIFX is not a pure bond fund, but provides an impressive 4.82% yield. FRIFX invests in debt securities, and preferred or common stock of real estate companies. The current bond allocation is 42%, according Morningstar.

The chart below shows that the long-term bullish trend for FRIFX was interrupted during the May 2013 correction and the price (net asset value) reached a low point in August. The price pattern has turned positive again in the last four months and we would not be surprised to see FRIFX resuming its long-term bullish trend in 2014.

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Buy and sell signals are available at FidelitySignal.com

 

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Best Fidelity Funds for 2014 – Part 1: Bond Funds

Rising interest rates created a bear market for bonds resulting in most bond mutual funds loosing value in 2013. Unfortunately, there are just not many good choices for income investors.

One of the few exceptions is high-yield corporate bonds and one of the best mutual funds available to participate in this trend is the Fidelity Capital and Income Fund (FAGIX).

Despite the name, FAGIX is not a growth and income fund, but a high-yield bond fund, based on the Morningstar classification. The 4.32% yield and the 7.01% year-to-date return sets FAGIX apart of most bond funds. We would continue to stay bullish on FAGIX, as long as the trendline (see blue line on chart) and the 50-day moving average holds.

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Buy/sell signals for Fidelity funds are available at FidelitySignal.com