A flexible fund for income-hungry investors


Adam Kramer is used to finding value in unusual places. He grew up in Montreal with two favorite activities as a child: collecting hockey cards and reading Barron every week. With hockey, he was always looking for that “undiscovered story,” the rookie card for a player who would eventually become an All-Star. Eventually, he started selling some of his All-Star cards to buy stocks.

“When I started investing in the 1980s, I would ask my dad to drive me to the corner store to buy the magazine every weekend, and I remember the excitement of opening Barron, looking for ideas and also hoping that the stock that I might have owned at the time would be mentioned there ”, explains Kramer, head of the

Fidelity Multi-Asset Income

funds (ticker: FMSDX).

His keen eye for investment opportunities is especially critical now, when the landscape of fixed income investing looks a bit like a minefield. Interest rates are almost zero. Some investors are concerned that recent economic stimulus packages could trigger a bond rout if higher inflation ensues. (Interest rates rise with inflation, and bond prices move in the opposite direction of rates.) But a resurgence of Covid-19 cases could cause the opposite effect – another economic downturn, which would likely lead some issuers of substandard bonds in bankruptcy.

In this environment, income-hungry investors need flexibility and a willingness to go beyond exclusively bond investments. Fidelity Multi-Asset Income offers that. The $ 1.4 billion fund can invest anywhere to generate income: dividend paying stocks, high or low quality corporate bonds, US or foreign government bonds, preferred stocks, convertible bonds, trusts Real Estate Investment Trust (REIT) and Master Limited Partnerships (MLP). ).

Such flexibility has produced solid results. The fund’s 16.7% three-year annualized return outperforms 99% of its peers in Morningstar’s Allocation fund category — 30% to 50% equities. An older institutional equity class (FAYZX) of the fund that is identically managed but with a slightly lower expense ratio — 0.83% vs. 0.85% for the retail category — beat 98% of its peers. over the past five years with a rate of 11.0%. to recover. While the fund’s 2.3% return is not currently great, it beats yields on Treasuries – 30-year Treasuries are earning 2.0%. In addition, the fund has the potential for significant capital appreciation, with around half the risk of a downturn in the stock market.

Total return
YTD 1 year 3 years
FMSDX 13.4 22.2 16.7
Allowance 30% to 50% 5.6 11.8 9.0
Top 10 equity holdings Weighting
Precious metals Wheaton / WPM 1.4
DHT Holdings / DHT 1.3
Newmont / NEM 1.2
Coca Cola / KO 0.9
Exxon Mobil / XOM 0.8
Alphabet / GOOGL 0.8
Agnico Eagle Mines / AEM 0.8
Wells Fargo / WFC 0.8
Enviva / EVA partners 0.8
Facebook / FB 0.7
Total: 9.4

* Holdings as of July 31, 2021; All returns to October 11, 2021; three-year returns are annualized.

Source: Morning Star

Kramer, 49, worked as an accountant for four years before obtaining his MBA in Investment Management from Cornell University in 1999. While there, Fidelity recruited him as a summer intern in its High Income and Alternatives, hiring him as a bond analyst in 2000.. “When I started, [the division] was primarily focused on high yield bonds, but over the years we have continued to add asset classes and expertise – floating rate debt, convertible bonds, preferred stocks, ”he says.

Kramer is also a portfolio manager on

Fidelity convertible securities


Fidelity Preferred Securities and Income

(FPFD) and other high yield, income focused equity funds, such as the popular $ 5.7 billion

Fidelity Dividends and Strategic Income

(FSDIX). But he prefers to be “agnostic” about investment style and asset class, finding the undiscovered value of any kind of security.

The challenge with such a flexible strategy is having the analytical skills to cover such a diverse mix of securities. Fortunately, Kramer has a deep bench to back him up. “We have $ 122 billion in assets under management in this [High Income and Alternatives] group, ”he says. Of the group’s 62 investment professionals, 35 of them are in research, he adds. Kramer has two co-managers on Multi-Asset Income: Ford O’Neil, who also works with Kramer in the bond market.

Fidelity Strategic Income

(FADMX) and Ramona Persaud, who directs

Fidelity Equity-Income


Kramer considers the fund’s benchmark to be a combination: 50%

S&P 500

and 50% of the Bloomberg Barclays US Aggregate Bond Index. However, the fund only had 18% exposure to equities as of September 2016, while more recently 52% of the portfolio was in equities as of August 31. exposure to yield bonds and cash, which fell to 13% and 1%, respectively, in August 2021, from 26% and 16% in September 2016. While Kramer acknowledges that the high yield bond market is trades at record yields, it still finds value in the sector relative to both premium and premium corporate bonds. Corporate bonds rated at least BBB currently only represent 0.5% of the portfolio.

“There is still a lot of good news in both [asset classes], but there is a lot of other good news about investment grade firms, especially if there is concern about rising rates, ”Kramer said.

Obligations of the supermarket chain


(ACI), rated BB, is among the top 10 titles. The company has the “intention and the ability to deleverage” its balance sheet, an important characteristic sought by Kramer. “The fundamentals have improved because [Albertsons’] same store sales increased, ”he said. Kramer expects the company’s credit rating to improve to reach investment grade. Meanwhile, the bond yields 3.1%, more than the 2.1% yield of competitive quality bonds.


(KR), which has comparable debt.

On the equity side, Kramer has favored REITs, which recently represented 9.4% of its portfolio. He believes the industry was oversold during the pandemic. It finds value especially in shopping center and retail REITs, such as

Simon Real Estate Group


National Retail Properties

(NNN), and

Esprit Capital Immobilier

(SRC). “I like the highest quality malls,” says Kramer. During the economic crisis of 2020, “some REITs issued debt in the investment grade bond market,” but their stocks were listed as if they were in financial difficulty, he said. This indicated that businesses were safer than they looked. The dividend yields of these three companies are up 4%.

Historically, one of Kramer’s favorite sectors has been convertible bonds. These securities have a portion of the rise in a company’s stock; they can be converted into equity when the common shares of companies trade above a predetermined price. And they still offer the downside protection of a bond if the stock stays below the conversion price.

Kramer also likes the makeup of the convertible bond market to be constantly changing. Indeed, when a convertible is successful and the issuing company converts it into shares, that company usually leaves the convertible market. “The [ICE BofA All US Convertibles Index] today is very different from what it was three years ago, ”he says.

This allows Kramer to do what he loves most: finding that undiscovered rookie card, or in this case, a convertible bond. In 2020, the fund’s convertible weighting reached 15% and Kramer held on to new issues of

Dick’s Sporting Goods

(DKS), whose value more than quadrupled after conversion. Today, after strong growth, the weighting of Kramer’s convertibles is only 5%. As always, he’s looking for that next opportunity.

E-mail: [email protected]

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