Why not use Fidelity High Income Fund SPHIX?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
fortfun
Posts: 1383
Joined: Tue Apr 19, 2016 7:31 pm

Why not use Fidelity High Income Fund SPHIX?

Post by fortfun » Sat Jun 09, 2018 4:38 pm

I know it has high fees (.72) and past performance is no guarantee for the future performance but with most of the other bonds in the tank, isn't it worth considering?

3.35% 4.79% 4.56% 7.01%

retiredjg
Posts: 34744
Joined: Thu Jan 10, 2008 12:56 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by retiredjg » Sat Jun 09, 2018 4:55 pm

This appears to me to be a "junk bond". Junk bonds act more like stocks and less like bonds during the bad times. It took a pretty good dip in the last market downturn - did not offer the portfolio stability that a bond allocation is supposed to offer.

I don't think it hurts much to have a small slice (5%?) in junk bonds, but putting your entire bond allocation into junk bonds would not be a wise move.

So....no it is not worth considering for your bond allocation although having a very small slice might be OK if you just have to have it.

User avatar
Topic Author
fortfun
Posts: 1383
Joined: Tue Apr 19, 2016 7:31 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by fortfun » Sat Jun 09, 2018 4:55 pm

fortfun wrote:
Sat Jun 09, 2018 4:38 pm
I know it has high fees (.72) and past performance is no guarantee for the future performance but with most of the other bonds in the tank, isn't it worth considering?

3.35% 4.79% 4.56% 7.01%
In searching the forum, I see they are considered "junk" bonds that are considered as risky as the stock market by some. Guess that's the answer...

User avatar
Topic Author
fortfun
Posts: 1383
Joined: Tue Apr 19, 2016 7:31 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by fortfun » Sat Jun 09, 2018 5:03 pm

retiredjg wrote:
Sat Jun 09, 2018 4:55 pm
This appears to me to be a "junk bond". Junk bonds act more like stocks and less like bonds during the bad times. It took a pretty good dip in the last market downturn - did not offer the portfolio stability that a bond allocation is supposed to offer.

I don't think it hurts much to have a small slice (5%?) in junk bonds, but putting your entire bond allocation into junk bonds would not be a wise move.

So....no it is not worth considering for your bond allocation although having a very small slice might be OK if you just have to have it.
Thanks Retiredjg! Having 30% of our porfolio in (FSITX) Fidelity U.S. Bond Index Fund Premium Class (0.05%) is killing me. I have no risk CDs earning 1.75%.

mcraepat9
Posts: 1066
Joined: Thu Jul 16, 2015 11:46 am

Re: Why not use Fidelity High Income Fund SPHIX?

Post by mcraepat9 » Sun Jun 10, 2018 12:14 am

Bonds are supposed to be safe assets. If you are looking for more yield, increase your allocation to stocks and decrease your bond allocation. The problem is holders of high yield junk bonds have historically not been adequately compensated for credit risk and call risk versus government bonds. If you’re going to take that risk, might as well take equity risk (with no cap on returns).
Amateur investors are not cool-headed logicians.

User avatar
oldcomputerguy
Posts: 3649
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: Why not use Fidelity High Income Fund SPHIX?

Post by oldcomputerguy » Sun Jun 10, 2018 7:57 am

fortfun wrote:
Sat Jun 09, 2018 5:03 pm
Thanks Retiredjg! Having 30% of our porfolio in (FSITX) Fidelity U.S. Bond Index Fund Premium Class (0.05%) is killing me. I have no risk CDs earning 1.75%.
I'm holding FSITX in my IRA, and am happy with it. Sure, it has shown a loss in NAV YTD, but so has just about the entire investment-grade bond universe. So that's not a point against this fund.

When you say that FSITX is "killing" you, do you mean that you're unhappy with bond declines lately? Seeing one part of your portfolio decline when others gain is nothing to worry about. That's the way it's supposed to work. Holding a diversified portfolio means that the movements of the parts have little or no correlation with each other. So sometimes a holding (even less risky holdings) will decline.

If this decline in bond fund NAV bothers you so much that you're thinking of making a change, what will you do the next time equities take a 20%, 30%, or larger dip? If you're really bothered by bond declines and feel you need to do something, sell some of your equity holding gainers and buy more FSITX with the money. That's rebalancing. That's what I did.

Looking at short-term declines in your bond holdings and deciding to jump ship in favor of junk bonds decreases your diversification and is nothing but yield chasing. Stay the course.

By the way, FSITX's 30-day SEC yield currently shows 3.08%.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

retiredjg
Posts: 34744
Joined: Thu Jan 10, 2008 12:56 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by retiredjg » Sun Jun 10, 2018 9:58 am

fortfun wrote:
Sat Jun 09, 2018 5:03 pm
Thanks Retiredjg! Having 30% of our porfolio in (FSITX) Fidelity U.S. Bond Index Fund Premium Class (0.05%) is killing me. I have no risk CDs earning 1.75%.
How is it "killing you"? The 30 day SEC yield is just over 3%.

Your question was "why not use SPHIX"....the answer is because it does not act like a bond is supposed to act. You have bonds in your portfolio for a reason. Using junk bonds does not accomplish that.

User avatar
Topic Author
fortfun
Posts: 1383
Joined: Tue Apr 19, 2016 7:31 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by fortfun » Sun Jun 10, 2018 4:36 pm

oldcomputerguy wrote:
Sun Jun 10, 2018 7:57 am
fortfun wrote:
Sat Jun 09, 2018 5:03 pm
Thanks Retiredjg! Having 30% of our porfolio in (FSITX) Fidelity U.S. Bond Index Fund Premium Class (0.05%) is killing me. I have no risk CDs earning 1.75%.
I'm holding FSITX in my IRA, and am happy with it. Sure, it has shown a loss in NAV YTD, but so has just about the entire investment-grade bond universe. So that's not a point against this fund.

When you say that FSITX is "killing" you, do you mean that you're unhappy with bond declines lately? Seeing one part of your portfolio decline when others gain is nothing to worry about. That's the way it's supposed to work. Holding a diversified portfolio means that the movements of the parts have little or no correlation with each other. So sometimes a holding (even less risky holdings) will decline.

If this decline in bond fund NAV bothers you so much that you're thinking of making a change, what will you do the next time equities take a 20%, 30%, or larger dip? If you're really bothered by bond declines and feel you need to do something, sell some of your equity holding gainers and buy more FSITX with the money. That's rebalancing. That's what I did.

Looking at short-term declines in your bond holdings and deciding to jump ship in favor of junk bonds decreases your diversification and is nothing but yield chasing. Stay the course.

By the way, FSITX's 30-day SEC yield currently shows 3.08%.
Thanks oldcomputer guy. The last number I looked at was -2% (ytd?). I guess I mean it is killing me because my money market account is making 1.6 and no risk CD 1.75. I guess in the long run FSITX will beat that. According to your latest number it is. Thanks!

User avatar
Topic Author
fortfun
Posts: 1383
Joined: Tue Apr 19, 2016 7:31 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by fortfun » Sun Jun 10, 2018 4:37 pm

retiredjg wrote:
Sun Jun 10, 2018 9:58 am
fortfun wrote:
Sat Jun 09, 2018 5:03 pm
Thanks Retiredjg! Having 30% of our porfolio in (FSITX) Fidelity U.S. Bond Index Fund Premium Class (0.05%) is killing me. I have no risk CDs earning 1.75%.
How is it "killing you"? The 30 day SEC yield is just over 3%.

Your question was "why not use SPHIX"....the answer is because it does not act like a bond is supposed to act. You have bonds in your portfolio for a reason. Using junk bonds does not accomplish that.
Feeling better now, sorry to be dramatic...Thanks!

tibbitts
Posts: 8236
Joined: Tue Feb 27, 2007 6:50 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by tibbitts » Sun Jun 10, 2018 4:47 pm

fortfun wrote:
Sat Jun 09, 2018 4:38 pm
I know it has high fees (.72) and past performance is no guarantee for the future performance but with most of the other bonds in the tank, isn't it worth considering?

3.35% 4.79% 4.56% 7.01%
I have a small allocation to this fund. A decade ago you would have lost about 30% in one year - make sure you're prepared to hang on through a similar performance.

User avatar
Topic Author
fortfun
Posts: 1383
Joined: Tue Apr 19, 2016 7:31 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by fortfun » Sun Jun 10, 2018 4:50 pm

tibbitts wrote:
Sun Jun 10, 2018 4:47 pm
fortfun wrote:
Sat Jun 09, 2018 4:38 pm
I know it has high fees (.72) and past performance is no guarantee for the future performance but with most of the other bonds in the tank, isn't it worth considering?

3.35% 4.79% 4.56% 7.01%
I have a small allocation to this fund. A decade ago you would have lost about 30% in one year - make sure you're prepared to hang on through a similar performance.
Tidbits, are SPHIX type of bonds included in total bond indexes? Just curious.

tibbitts
Posts: 8236
Joined: Tue Feb 27, 2007 6:50 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by tibbitts » Sun Jun 10, 2018 5:11 pm

fortfun wrote:
Sun Jun 10, 2018 4:50 pm
tibbitts wrote:
Sun Jun 10, 2018 4:47 pm
fortfun wrote:
Sat Jun 09, 2018 4:38 pm
I know it has high fees (.72) and past performance is no guarantee for the future performance but with most of the other bonds in the tank, isn't it worth considering?

3.35% 4.79% 4.56% 7.01%
I have a small allocation to this fund. A decade ago you would have lost about 30% in one year - make sure you're prepared to hang on through a similar performance.
Tidbits, are SPHIX type of bonds included in total bond indexes? Just curious.
Not in any of the bond index funds (other than the high-yield bond index funds) that I know of, so if you truly want the entire bond market, you need to add them.

lack_ey
Posts: 6639
Joined: Wed Nov 19, 2014 11:55 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by lack_ey » Sun Jun 10, 2018 5:31 pm

tibbitts wrote:
Sun Jun 10, 2018 5:11 pm
fortfun wrote:
Sun Jun 10, 2018 4:50 pm
tibbitts wrote:
Sun Jun 10, 2018 4:47 pm
fortfun wrote:
Sat Jun 09, 2018 4:38 pm
I know it has high fees (.72) and past performance is no guarantee for the future performance but with most of the other bonds in the tank, isn't it worth considering?

3.35% 4.79% 4.56% 7.01%
I have a small allocation to this fund. A decade ago you would have lost about 30% in one year - make sure you're prepared to hang on through a similar performance.
Tidbits, are SPHIX type of bonds included in total bond indexes? Just curious.
Not in any of the bond index funds (other than the high-yield bond index funds) that I know of, so if you truly want the entire bond market, you need to add them.
That's not really right.

The standard index people use to represent the bond market is the Bloomberg Barclays U.S. Aggregate Bond Index, which does not include junk bonds. Most of the total bond index funds use this; Vanguard's uses a variant with a slightly different weighting based on some additional float adjustment.

But there are bond indexes that include bonds of both investment grade and sub-investment grade (junk), and some bond index funds following them.

iShares Core Total USD Bond Market ETF (IUSB) is a total bond-type fund that includes sub-investment grade including HY corporate. iShares Core 1-5 Year USD Bond ETF (ISTB), iShares Core 5-10 Year USD Bond ETF (IMTB), and iShares Core 10+ Year USD Bond ETF (ILTB) are similar but target different maturity ranges.



Other notes:

SEC yield is not return, though for many bond funds it's a reasonable ballpark point estimate of likely forward return (in the sense of being near the mean of the distribution; actual outcomes may be very different).

A junk bond fund similar in quality to Fidelity High Income (SPHIX) has moved on average about half as much as the stock market and may do roughly the same under a range of market conditions but of course not all the time. If stocks suddenly drop down 20%, it might go down 10%. Actually, very likely something else, but that's about where your starting expectations should be. It may have some use but it needs to be analyzed in this context with respect to the reduced diversification, the greater relationship with equity risk.

tibbitts
Posts: 8236
Joined: Tue Feb 27, 2007 6:50 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by tibbitts » Sun Jun 10, 2018 5:50 pm

lack_ey wrote:
Sun Jun 10, 2018 5:31 pm
tibbitts wrote:
Sun Jun 10, 2018 5:11 pm
fortfun wrote:
Sun Jun 10, 2018 4:50 pm
tibbitts wrote:
Sun Jun 10, 2018 4:47 pm
fortfun wrote:
Sat Jun 09, 2018 4:38 pm
I know it has high fees (.72) and past performance is no guarantee for the future performance but with most of the other bonds in the tank, isn't it worth considering?

3.35% 4.79% 4.56% 7.01%
I have a small allocation to this fund. A decade ago you would have lost about 30% in one year - make sure you're prepared to hang on through a similar performance.
Tidbits, are SPHIX type of bonds included in total bond indexes? Just curious.
Not in any of the bond index funds (other than the high-yield bond index funds) that I know of, so if you truly want the entire bond market, you need to add them.
That's not really right.

The standard index people use to represent the bond market is the Bloomberg Barclays U.S. Aggregate Bond Index, which does not include junk bonds. Most of the total bond index funds use this; Vanguard's uses a variant with a slightly different weighting based on some additional float adjustment.

But there are bond indexes that include bonds of both investment grade and sub-investment grade (junk), and some bond index funds following them.

iShares Core Total USD Bond Market ETF (IUSB) is a total bond-type fund that includes sub-investment grade including HY corporate. iShares Core 1-5 Year USD Bond ETF (ISTB), iShares Core 5-10 Year USD Bond ETF (IMTB), and iShares Core 10+ Year USD Bond ETF (ILTB) are similar but target different maturity ranges.



Other notes:

SEC yield is not return, though for many bond funds it's a reasonable ballpark point estimate of likely forward return (in the sense of being near the mean of the distribution; actual outcomes may be very different).

A junk bond fund similar in quality to Fidelity High Income (SPHIX) has moved on average about half as much as the stock market and may do roughly the same under a range of market conditions but of course not all the time. If stocks suddenly drop down 20%, it might go down 10%. Actually, very likely something else, but that's about where your starting expectations should be. It may have some use but it needs to be analyzed in this context with respect to the reduced diversification, the greater relationship with equity risk.
I didn't know about the iShares ETFs.

SEC yield would have to be adjusted for high yield, so maybe SEC yield minus 1% would be reasonable.

scrabbler1
Posts: 2273
Joined: Fri Nov 20, 2009 2:39 pm

Re: Why not use Fidelity High Income Fund SPHIX?

Post by scrabbler1 » Sun Jun 10, 2018 6:58 pm

I don't mind bond funds with some riskier bonds. But that fund's bonds are a little too risky for me. A happy medium, I have found, is another Fidelity bond fund called Fidelity Focused High Income Fund (FHIFX). Its underlying bonds are in the B-BB-BBB range, at the low end of investment grade to just below investment grade.

mptfan
Posts: 4890
Joined: Mon Mar 05, 2007 9:58 am

Re: Why not use Fidelity High Income Fund SPHIX?

Post by mptfan » Thu Jan 10, 2019 3:52 pm

mcraepat9 wrote:
Sun Jun 10, 2018 12:14 am
Bonds are supposed to be safe assets.
Says whom? I hear people say this all the time as if it is a well settled fact that is not subject to debate or disagreement, but where does this notion come from and why is it so often stated as a settled fact? Needless to say I don't agree that there is a universal agreement that bonds are supposed to be "safe assets." And how do you define "safe?" I think we can all agree that U.S. Treasury bonds are safe in terms of risk of losing principal, but of course the market value of the bond will fluctuate over time, so if "safe" is defined as no loss of principal then even Treasury bonds are not safe. What about investment grade corporate bonds? Are they safe? Do people who proclaim that bonds are supposed to be safe assets only invest in U.S. Treasury bonds? What about long term corporate bonds whose price fluctuate wildly?

mcraepat9
Posts: 1066
Joined: Thu Jul 16, 2015 11:46 am

Re: Why not use Fidelity High Income Fund SPHIX?

Post by mcraepat9 » Thu Jan 10, 2019 3:59 pm

mptfan wrote:
Thu Jan 10, 2019 3:52 pm
mcraepat9 wrote:
Sun Jun 10, 2018 12:14 am
Bonds are supposed to be safe assets.
Says whom? I do. You can say what you think, of course. I think of bonds as "riskless" assets, even though you are right there are of course some risks. When I say safe, I mean materially less risky than equities. I am happy to edit my post to say "I think bonds are supposed to be safe assets". I hear people say this all the time as if it is a well settled fact that is not subject to debate or disagreement, but where does this notion come from and why is it stated thus? I think it is well settled that bonds are safer than equities - you disagree? Needless to say I don't agree that there is a universal agreement that bonds are supposed to be "safe assets." You are entitled to your opinion, of course. And how do you define "safe?" Materially less risky than equities. I think we can all agree that U.S. Treasury bonds are safe in terms of risk of losing principal, but of course the market value of the bond will fluctuate over time, so if "safe" is defined as no loss of principal then even Treasury bonds are not safe. Sure this is true - again, I am more concerned about the payment of interest than the market value of the bond on the secondary market, but of course this is correct. What about investment grade corporate bonds? I don't invest in these. Are they safe? Again, I don't invest in corporate debt so to me it is not relevant. Do people who proclaim that bonds are supposed to be safe assets only invest in U.S. Treasury bonds? An overwhelming majority of my fixed income is in U.S. Treasury bonds and savings bonds, with a small portion in municipal bonds (which I acknowledge are less safe than Treasury securities). What about long term corporate bonds whose price fluctuate wildly? I don't invest in long term bonds and I don't invest in non-governmental bonds so again I don't care.
I think of my investment assets as falling into two buckets - risk and riskless/safe. To me, bonds are for safety. I prefer my risks to be taken on the equity side. Maybe I'm stupid, but that's my view.
Amateur investors are not cool-headed logicians.

mptfan
Posts: 4890
Joined: Mon Mar 05, 2007 9:58 am

Re: Why not use Fidelity High Income Fund SPHIX?

Post by mptfan » Thu Jan 10, 2019 4:39 pm

mcraepat9 wrote:
Thu Jan 10, 2019 3:59 pm
I think of my investment assets as falling into two buckets - risk and riskless/safe. To me, bonds are for safety. I prefer my risks to be taken on the equity side. Maybe I'm stupid, but that's my view.
I don't think you are stupid, and you are entitled to your opinion, and you are entitled to think of bonds as being for safety, and if you only invest in short term treasury bonds then you are being consistent and I respect your view. The issue I have is when people proclaim how things are supposed to be, i.e. "bonds are supposed to be for safety" as if this is a universal truth which implies that my opinion goes against what is supposed to be. I also have an issue with people who proclaim that "bonds are for safety" while simultaneously investing in a total bond fund that includes corporate bond funds.

NoblesvilleIN
Posts: 26
Joined: Sat Mar 24, 2018 6:04 pm
Location: Noblesville IN

Re: Why not use Fidelity High Income Fund SPHIX?

Post by NoblesvilleIN » Thu Jan 10, 2019 7:25 pm

I don't know if this will help you or not. I owned SPHIX from November 2013 thru October 2018. I purchased it for $9.40 per share and sold it for $8.69, a loss of $0.71 per share (it was in an IRA, so not a tax loss). In the approximately 5 years I owned it, I received $2.57 per share in income. It was purchased to generate income. I got concerned that junk bonds would get hammered (from an income standpoint) in a recession and decided to sell. The income also got smaller each year that I owned the fund - going from $0.56 at purchase to $0.46 per share when I sold. Also I was retiring at the end of December and I was re-positioning more for safety. In my experience, junk bonds were not helpful when thinking about safety and I am moving toward CD's and treasuries for income (with more safety). I've come around to the thought that gets expressed quite often on this site: "take your risk in stocks, not bonds" or how ever it has been worded.

Post Reply