Fidelity Core Bond Strategy

[eytonxav]

Has anyone invested in Fidelity Core Bond Strategy program and what do you think of the program? This is a managed program that invests in individual bonds which might be appropriate in a raising rate environment, and has a fee ranging from .35 to .40 depending on how much is invested. I believe its current return is over 4%. The fee seems reasonable compared to some bond mutual funds, but of course not with some bond etfs. Vanguard also may have some cheaper bond mutual funds I suspect.

 

[Dawg52]

Has a $500k min investment level. Not for the small dollar cost average investor.

 

[eytonxav]

Has a $500k min investment level. Not for the small dollar cost average investor.

Yep, but we have many on here that would qualify.

 

[njhowie]

For anyone interested, here is the overview sheet: https://www.fidelity.com/bin-public...aged-accounts/Fidelity-Core-Bond-Strategy.pdf

Folks should note that minimum for this program is $500,000.

I would personally be concerned that the folks managing this will not necessarily select the best bonds for my portfolio as opposed to whatever Fidelity's bond inventory is at the time. Sure, the selected bonds will meet whatever the criteria is. However, are these folks impartial and more interested in the success of my portfolio? Or creating a portfolio utilizing what they have available?

Also, note that total fees may be higher than the .35 to .40.

3. The advisory fee does not cover charges resulting from trades effected with or through broker-dealers other than affiliates of Strategic Advisers, mark-ups or mark-downs by broker-dealers, transfer taxes, exchange fees, regulatory fees, odd-lot differentials, handling charges, electronic fund and wire transfer fees, or any other charges imposed by law or otherwise applicable to your account. You may also incur underlying expenses associated with the investment vehicles selected.

 

[Another Reader]

I would rather pay Wellesley and Wellington fees over at Vanguard. They have a long history of picking quality and following a "strategy."

 

[audreyh1]

Has anyone invested in Fidelity Core Bond Strategy program and what do you think of the program? This is a managed program that invests in individual bonds which might be appropriate in a raising rate environment, and has a fee ranging from .35 to .40 depending on how much is invested. I believe its current return is over 4%. The fee seems reasonable compared to some bond mutual funds, but of course not with some bond etfs. Vanguard also may have some cheaper bond mutual funds I suspect.

Fidelity has a very well respected bond mutual fund team. I’m not interested in timing interest rate moves, and I’m invested for the very long term, so I just use regular bond funds with low expense ratios. If bond funds sell off big time in the short term, I will automatically buy more when I rebalance.

I would be interested to know their target credit quality - but I suppose this would be another thing the strategy would seek to manipulate for profit.

I prefer to own a piece of a mutual fund rather than have an investment team runnung a much much smaller chunk as a stand-alone mutual fund.

 

[eytonxav]

Also, note that total fees may be higher than the .35 to .40.

No, individual bonds do not have fees. You just pay .35 to .40 of invested value.

I would be interested to know their target credit quality - but I suppose this would be another thing the strategy would seek to manipulate for profit.

I prefer to own a piece of a mutual fund rather than have an investment team runnung a much much smaller chunk as a stand-alone mutual fund.

Target credit ratings are 80% of bonds ranging from A- to AAA, with nothing below BBB- for the remaining 20%. I am considering giving it a try, but will still hang on to several of my bond funds. The return is attractive.

 

[njhowie]

I would be interested to know their target credit quality - but I suppose this would be another thing the strategy would seek to manipulate for profit.

"By maintaining a portfolio of investment-grade bonds that has an average credit rating of at least A–, with 80% being A– or better, Fidelity Core Bond Strategy is built to seek income and help limit risk to an investor’s investment over the long term."

 

[Dawg52]

Yep, but we have many on here that would qualify.

But many that do qualify might not want to start with that sizable amount. I know I don't. Perhaps if I had an 8 digit portfolio......

 

[njhowie]

But many that do qualify might not want to start with that sizable amount. I know I don't. Perhaps if I had an 8 digit portfolio......

Agreed. If my portfolio were $10M, then 5% in it might be ok.

It's unclear to me what the attraction is above and beyond a bond ETF or mutual/index fund. If the current return is "above 4%", then they are doing like all active bond funds - picking some lower quality stuff (with associated higher risk) to juice the overall return, because we know that the A and higher stuff is not providing 4% at this time.

This strategy is for the investors portfolio alone, selecting roughly 25 to 50 individual bonds, and as a result there is less diversification. Should one of the lower quality issues default or go bust, it will have a meaningful impact on the portfolio as a whole.

I like Fidelity a lot and have lots with them. However, this specific product is not one that jumps out at me.

 

[eytonxav]

If the bonds are held to maturity it may be beneficial in a rising rate environment and its looking like the roosters may finally be coming home to roost after so many years of cheap money.

 

[njhowie]

If the bonds are held to maturity it may be beneficial in a rising rate environment and its looking like the roosters may finally be coming home to roost after so many years of cheap money.

If you believe that the strategy is something that makes sense for you, your investment objective, and risk tolerance, that's all that matters.

 

[hesperus]

It works for me... Holding over 1M in laddered individual bonds. But not through the fido advisory services.

 

[njhowie]

It works for me... Holding over 1M in laddered individual bonds. But not through the fido advisory services.

+1 - ditto here.

 

[eytonxav]

If you believe that the strategy is something that makes sense for you, your investment objective, and risk tolerance, that's all that matters.

I'm just soliciting input, especially from those that may of had experience with it. Awareness of pros and cons is a good thing and I still have a lot of questions to ask Fidelity before I would commit to something like this. Bulletshares is another possibility for a rising rate environment. Without strong bond market knowledge and company analysis selecting individual bonds is not for novices.

 

[foxfirev5]

I checked it out after my Fido guy suggested it. He thought it might be a better idea than my CD ladder. If you cut out the lower rated investment grade corporates the yield was just a bit higher than my CD ladder. The spread between AA rated corporates and CD's right now is so small it fails to interest me at all. I elected to DIY and go with a CD ladder (50%) and separate mutual fund and ETF's for other sectors (50%).

 

[eytonxav]

I checked it out after my Fido guy suggested it. He thought it might be a better idea than my CD ladder. If you cut out the lower rated investment grade corporates the yield was just a bit higher than my CD ladder. The spread between AA rated corporates and CD's right now is so small it fails to interest me at all. I elected to DIY and go with a CD ladder (50%) and separate mutual fund and ETF funds for other sectors (50%).

That is something I am considering as well. Sounds like you may have already done a deeper dive on this than me, but I'm still gonna run through my list of questions for Fidelities bond guy and compare to the CD ladder/mf/etf approach.

 

[foxfirev5]

That is something I am considering as well. Sounds like you may have already done a deeper dive on this than me, but I'm still gonna run through my list of questions for Fidelities bond guy and compare to the CD ladder/mf/etf approach.

By all means let us know what you find out. Thanks

 

[Jerry1]

I am looking into this as well. My situation is that I have a pension that is just short of the $500,000 minimum if I take a lump sum. Therefore, I would kick in about $50K and make the deal happen. The interest I have is that this seems like a viable alternative to putting that much into an annuity. If I take my pension as an annuity, I will get about $25K per year with 100% survivor benefit (about $2,100 per month). But of course, the annuity would entail giving up my full pension of about $450K.

Fidelity said that with $500,000, they could generate $25K/yr in income using this product. That is 5% per year. But with this product, I can get out and still have principle. Yes, I'd have issues like market valuation and maybe some penalties but at least I could walk away with the bulk of my base, unlike an annuity.

So I'm interested. The pension is money I did not contribute toward - all company sponsored. This product seems to be a reasonable response to my desire to have some secure income yet not commit to an annuity.

While I have not fully discussed this through with the advisor, my understanding is that it is less risky than a bond fund in much the same way that a bond ladder is. The bonds will be shorter duration and matched specifically to my goal of stable income. In a mutual fund, let's say that interest rates go up and people flee the bond fund. The bond fund still needs to be in line with their stated investment objectives. This could cause them to have to stay invested or buy and sell in ways that the manager of my mini fund will not have to do.

Like the OP, I'd be thankful for any insight this group may have as I expect to get into this in much more detail in my next couple of meetings with the advisor. Thanks.

 

[DrRoy]

My Fido guy told me about it last fall. At that time the return was 2.2% if I remember correctly. I thought about it but did not go with it. My last corp bond purchase was about 9 yrs, BBB- @ 4.3%.

 

[eytonxav]

My Fido guy told me about it last fall. At that time the return was 2.2% if I remember correctly. I thought about it but did not go with it. My last corp bond purchase was about 9 yrs, BBB- @ 4.3%.

Yep, the Fidelity rep had misquoted the return from this strategy, and it turns out to only net 2.2%. I see no advantage to this approach, so I am starting to shift out of some of my bond funds into CD ladders.

 

[COcheesehead]

I run my own ladder. Fidelity gives you all the tools to build and manage a ladder so this program seems like its for someone who does not want to DIY. The fees seem high for something that isn’t all that difficult to do.

 

[eytonxav]

I run my own ladder. Fidelity gives you all the tools to build and manage a ladder so this program seems like its for someone who does not want to DIY. The fees seem high for something that isn’t all that difficult to do.

Their tool is easy to use, but selecting the best choices from their inventory is not that easy without research and knowledge of the bond market. Anyhow, returns do not look that favorable to go this route at this time.

 

[COcheesehead]

Their tool is easy to use, but selecting the best choices from their inventory is not that easy without research and knowledge of the bond market. Anyhow, returns do not look that favorable to go this route at this time.

I’ll do one quick plug for a DIY bond ladder and then I’ll leave it alone.
Pick a duration
Pick a rating
Check third party price data
Don’t put all your eggs in one basket/industry
Buy and repeat over whatever timeframe you desire.
I buy quality and stay short, 2 years ish.
Use their bond analyzer to manage the ladder to see when issues will come due and what cash flow you are generating.

 

[pb4uski]

So what are you seeing for current yields for quality and short duration?

I'm comparing to 2 year CDs that yield ~2.5%