Fidelity Total Bond fund

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Yesterdaysnews
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Fidelity Total Bond fund

Post by Yesterdaysnews » Wed Apr 27, 2016 4:32 pm

FTBFX

Opinions on this fund for a core bond holding in a Fido IRA?? A bit more expensive than index offerings at Fido but seems like a solid intermediate duration fund. Appreciate any thoughts or opinions.

Tommy
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Re: Fidelity Total Bond fund

Post by Tommy » Wed Apr 27, 2016 4:37 pm

I have it in Fidelity IRA. A little bit more expensive than Spartan fund but looks like a little bit more return.

lack_ey
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Re: Fidelity Total Bond fund

Post by lack_ey » Wed Apr 27, 2016 4:57 pm

They tilt more heavily to corporates, including about 15% to high yield. This kind of brings to mind Dodge and Cox's Income fund, which also takes a credit-heavy approach to a core bond fund. I don't know anything really about the fund's management and approach, but Morningstar likes them and gives them a gold rating, for what (little) that's worth.

With more risk came more returns over the period, though not during the whole panic over credit during the financial crisis.

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One question to ask is whether you can replicate the exposures and potentially do slightly better with cheaper alternatives. Since its inception, that seems to have been the case.

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(though note that Vanguard's high yield fund did better than most in the category, in part from the low fee but also from sticking to relative higher quality and perhaps the securities selection)

camaro327
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Re: Fidelity Total Bond fund

Post by camaro327 » Wed Apr 27, 2016 4:58 pm

It's okay in a tax-advantaged account. I would still prefer the spartan US bond index with it's lower expense ratio.

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nisiprius
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Re: Fidelity Total Bond fund

Post by nisiprius » Wed Apr 27, 2016 5:07 pm

I hadn't known about this fund.

Just to be clear: the Fidelity fund that is most similar to the Vanguard Total Bond Market Index Fund, VTBMX, is not this fund. It is the
Fidelity Spartan U. S. Bond Index Fund:
FBIDX for Investor shares, ER 0.20%, minimum investment $2,500, or
FSITX, Advantage shares, ER 0.07%, minimum $10,000.
These funds a) are index funds, and b) track the Barclay's U. S. Aggregate Bond Index (in Vanguard's case, the Float-Adjusted Aggregate Bond Index). Fidelity's language: "Seeks to provide investment results that correspond to the aggregate price and interest performance of the debt securities in the Barclays U.S. Aggregate Bond Index."

The Fidelity Total Bond Fund is not an index fund. It says that the objective is simply "a high level of current income." It does reference the Barclay's Universal U.S. Bond Index (which includes high-yield and some other categories, but is still not "total" because it omits TIPS and tax-exempt bonds): "Using the Barclays U.S. Universal Bond Index as a guide in allocating assets across the investment-grade, high yield, and emerging market asset classes." But the managers "Analyz[es] the credit quality of the issuer, the issuer's potential for success, the credit, currency, and economic risks of the security and its issuer, security-specific features, current and potential future valuation, and trading opportunities to select investments," and it "Engaging in transactions that have a leveraging effect on the fund, including investments in derivatives - such as swaps (interest rate, total return, and credit default), options, and futures contracts - and forward-settling securities..." In short, it's an actively managed fund guided by the Barclay's U. S. Universal Bond Index.
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GoFish
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Re: Fidelity Total Bond fund

Post by GoFish » Wed Apr 27, 2016 5:20 pm

I held FTBFX (total bond fund) for a while with approx 8% of my portfolio. Last fall and this spring I gradually transitioned to FSITX (index fund). I moved my allocation for 2 reasons: 1) I wanted more treasury exposure and less corporate exposure for this holding; and 2) the expense ratio is lower for FSITX.

I was/am prepared to perhaps give up some yield in return for a little less credit risk in a 60/40 AA portfolio.

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Re: Fidelity Total Bond fund

Post by nisiprius » Wed Apr 27, 2016 8:25 pm

At a quick glance, it is pretty clear that it's just as you'd expect: FTBFX (blue) has higher return, and it has higher risk and lower credit quality, compared to FBIDX/FSTIX (orange). The increased risk is most apparent to the eye during 2008-2009. Just to be clear, because Morningstar automatically scales everything, that's still just a 10% drop, compared to the 50% drop you had in stocks (not shown).

Source

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Re: Fidelity Total Bond fund

Post by saltycaper » Thu Apr 28, 2016 10:26 am

nisiprius wrote:
The Fidelity Total Bond Fund is not an index fund. It says that the objective is simply "a high level of current income."

...

and it "Engaging in transactions that have a leveraging effect on the fund, including investments in derivatives - such as swaps (interest rate, total return, and credit default), options, and futures contracts - and forward-settling securities..."
Interestingly, even one of the supposedly safest and most boring Fidelity bond fund series, the Spartan Treasury Bond Index Funds, state for the objective, "The fund seeks a high level of current income." They also use leverage and point out the additional risks of doing so. I wouldn't let this language influence a decision on whether this particular Fido fund is a good idea compared to other Fido funds; however, even though it reads like standard boilerplate, it is off-putting to me for investing in Fido bond funds in general.

I would not invest in this fund due to its inclusion of high yield bonds. Even if you want a high yield bond position, why mix with high quality bonds? They behave too much like equities in down markets such that you will be selling at an inopportune time in order to rebalance into stocks.
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