After the market turmoil in the second half of 2015, new trends have emerged in 2016. One of the important new trends is that the long-term Treasury yield index reversed direction and going lower:
Lower long-term interest rates coupled with the strengthening U.S. economy makes bond investments attractive again. The Fidelity U.S. Bond Index Portfolio Fund (FBIDX) is a great way to participate in the new investment environment, because FBIDX invests in both Treasury and corporate bonds.
One of our long-term favorites is the Spartan Municipal Bond Fund (FHIGX). This fund has been making steady gains since October 2015 and we believe that the improving economy should continue to strengthen the credit worthiness of issuers and increase demand for municipal bonds.
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.