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.
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:
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:
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.