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Fidelity Investments expands suite of short duration bond funds

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Fidelity Investments has expanded its line-up of short duration bond mutual funds for investors and financial advisors with the launch of three new products.

The new funds are: Fidelity Limited Term Bond Fund, Fidelity Conservative Income Municipal Bond Fund and Fidelity Short Duration High Income Fund (advisor and retail shares classes).
 
“A top concern for many bond investors today is their exposure to interest rate risk and the negative impact rising rates could have on their bond portfolios,” says Charlie Morrison, president of Fidelity’s fixed income division. “For investors seeking to lower this risk, short duration funds can be an appropriate addition to a well-diversified bond portfolio.”
 
While the Federal Reserve has indicated it is unlikely to raise the short-term Fed funds rate in the near term, longer-term rates may rise if the Fed tapers its bond purchases. Under these circumstances, short duration bonds are generally less sensitive to rising interest rates. Even against a backdrop of declining interest rates over the past couple of decades, short duration funds have demonstrated the potential to capture compelling fixed income returns with less volatility.
 
The three new short duration bond funds are managed with varying degrees of credit and interest rate exposure, from primarily investment grade to below investment grade and with weighted average maturities between six months to five years.
 
Fidelity Conservative Income Municipal Bond Fund (FCRDX) – Managed by 19-year Fidelity veteran Doug McGinley, Fidelity Conservative Income Municipal Bond Fund invests in money market securities and high quality investment-grade municipal debt securities with a short duration. The fund normally maintains a dollar-weighted average maturity of one year or less. It offers a retail class (FCRDX) and an advisor class (FMNDX).
 
Fidelity Limited Term Bond Fund (FJRLX) – Lead managed by 26-year Fidelity veteran Robert Galusza, Fidelity Limited Term Bond Fund seeks to provide a high rate of income and is credit-oriented, investing in sectors such as corporates, commercial mortgage-backed securities, asset backed securities and government agency mortgages, which typically offer higher yields than treasuries and government securities. The fund normally maintains a dollar-weighted average maturity between two and five years. David Prothro, who co-manages Fidelity Corporate Bond Fund, co-manages the new fund.
 
Fidelity Short Duration High Income Bond Fund – Lead managed by 18-year Fidelity veteran Matt Conti, Fidelity Short Duration High Income Fund normally invests in higher quality below investment grade bonds rated BB or B. It also intends to invest in floating rate loans and investment grade corporate bonds. The fund normally maintains a dollar-weighted average maturity of three years or less. Michael Plage, who co-manages Fidelity Corporate Bond Fund, will manage the fund’s US investment grade assets.
 
With the launch of these three new funds, Fidelity now offers investors and advisors access to a suite of 13 short duration funds, with total assets under management of more than USD34bn.
 
Fidelity has also launched a new report, “Investor Blind Spots in Short Duration Bond Funds.” The report highlights that many investors may not fully understand the different levels of risk associated with different short duration products.

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