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Conservative Investors Will
Appreciate This Security's Solid 5.7% Distribution |
Published:
July 5,
2007
Fidelity Strategic Income (FSICX,
$10.53) -- This multi-sector bond fund pays a monthly
dividend of nearly $0.05 per share, which together with a year-end
capital gains payment of almost $0.03 per share equates to total annual
distributions of roughly $0.60 per share. That gives the fund an
attractive 5.7% yield at its current share price. A below-average
expense ratio of just 0.75% takes a relatively small bite out of total
returns.
Most of the dividend is taxable as ordinary income, so the fund is best
held in a tax-deferred IRA or 401(k) type of account. Fidelity offers a
Dividend Reinvestment Plan (DRIP), and you can call them for details at
1-800-FIDELITY.
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The generous payout is powered by a
diverse portfolio of ultra-safe U.S. government bonds (about 40%
of the portfolio), higher-yield/higher-risk corporate bonds
(30%), and an equal mix of debt issued by emerging and developed
countries around the world (30%). About half the portfolio is
investment grade, and the other half lies in the upper tiers of
sub-investment grade. Most of the fund's portfolio assets are
held in U.S. dollars, which helps reduce currency volatility.
Formed nearly a decade ago in 1998, FSICX is well established
and has a strong track record. Over the past five years, the
fund has delivered average annual returns of +9.5%, handily
beating its benchmark Lehman Aggregate Bond Index and leaving
over 80% of its peers in the dust, according to fund tracker
Morningstar.
Over the past year, the fund's returns have been driven largely
by its exposure to the high-yield and emerging bond sectors.
Going forward, its diverse portfolio mix should keep total
returns steady, if and when these more volatile asset classes
eventually retreat.
Like most bond funds, FSICX performs best when interest rates
remain stable or move lower. If rates were to rise (sending bond
prices lower), then the fund could quickly lose value. That
said, a fund like FSICX, which holds a diverse mix of nearly 700
different bonds across several major sectors, should weather
such a difficult environment better than most.
In fact, the fund has not posted a single calendar year of
negative returns in its entire nine-year history. Even in a
period of rising rates during 1999 to 2001, FSICX still
generated average returns of nearly +6% a year.
Action To Take ---> If you're
seeking a moderately safe bond fund with an above-average yield
and a solid long-term track record, FSICX is worth considering.
Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
On the
educational front, Carla holds both MBA and Ph.D. degrees. When she's
not watching the market, she's teaching business courses at the college
level and managing several million dollars in portfolio assets.
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