| Fund Company | Fidelity Investments Canada ULC |
| Fund Type | Canadian Fixed Income |
| Rating | A |
| Style | Credit Analysis |
| Risk Level | Low |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Brian Miron since September 2010
Catriona Martin since July 2012 |
| MER | 1.69% |
| Code | FID 1634 – Front End Units
FID 1631 – DSC Units |
| Minimum Investment | $500 |
Analysis: Into today’s challenging fixed income environment, one way to enjoy above average returns is to invest in corporate bonds, which offer marginally higher yields than the safe haven government bonds. One of the stronger funds in that space has been the Fidelity Corporate Bond Fund. As the name suggests, it invests predominantly in Canadian corporate bonds, which make up nearly 80% of the portfolio. The balance is invested in a mix of global and high yield bonds.
Rather than try to guess which way interest rates will move, the managers conduct detailed credit analysis that looks for high quality bonds that are attractively priced based on the outlook. Manager Brian Miron has been doing credit analysis at Fidelity since 2000. As a starting point, Mr. Miron looks at the bonds included in the DEX Universe All Corporate Bond Index.
The high yield exposure in the fund is obtained by investing in the Fidelity American High Yield Bond Fund. High yield is approximately 10% of the portfolio. In the current environment, the managers are keeping the portfolio highly liquid to be well positioned to take advantage of any buying opportunities resulting from increased volatility. The portfolio is well diversified, holding more than 160 bonds, with the top ten making up about 17% of the fund.
Performance has been very strong since its launch in 2010, handily outpacing the majority of its peer group. For the three years ending May 31, it has gained an annualized 5.0%, outpacing the category average by 110 basis points. Volatility has been in line with the broader market, and has outperformed in both up and down markets.
The portfolio is well positioned for the current and a rising rate environment, but it will still be hit should we see a bump in rates. Its duration is 5.88 years, which is below the broader Canadian market, which is approximately 7. This means that for every 1% rise in rates, it is expected that this fund will drop by 6%.
With the focus on investment grade bonds, I believe that this is suitable as a core bond holding for most investors. Still investors must be aware that if we see a period of extreme flight to safety, this will be hit more than a fund with more government bond exposure. That said, I expect that it will continue to outperform in normal market environments.