Fidelity Investments plans to start a new bond fund that will take more risk than two others the biggest US mutual fund company has filed to offer since April.
Fidelity Total Bond Fund will typically invest at least 80 percent of its assets in all types of debt securities -- and can devote 15 percent to high-yield and emerging market debt, according to a regulatory filing.
Fidelity's moves come as investors have been ploughing money into bond funds and other fixed-income investments and withdrawing from equity investments that have been losing value. The 8,965 US-based stock funds Bloomberg tracks have declined 24 percent on average in the 12 months ended July 25 compared with a 4.8 percent gain for 4,296 bond funds.
Investment companies such as Fidelity have been jockeying to broaden their menu of bond funds to attract new money.
"Fidelity realizes there's a huge market for bond funds, just given the current equity market environment and investor sentiment," said Jim Lowell, editor of Fidelity Investor, an independent newsletter based in Needham, Massachusetts.
This year's best-selling mutual fund has been the Pimco Total Return Fund, which opened in May 1987 and invests in high-yield as well as investment-grade fixed-income securities.
Its assets soared to US$58.6 billion as of June 30 from US$43.9 billion one year earlier, according to Financial Research Corp, a Boston consulting firm. That makes it the second-largest fund by assets behind Fidelity's own Magellan Fund, according to Morningstar Inc analyst Stephen Murphy.
Magellan, which opened in 1963 and no longer accepts new investments except through retirement plans, had assets of US$65.9 billion at the end of June, their lowest monthly level in almost four years.
Lowell said Fidelity's Total Bond Fund will be aimed at the same investors who are flocking to the Pimco Total Return Fund.
The new Fidelity fund, which will require a minimum investment of US$2,500 or US$500 for retirement accounts, will be managed by Kevin Grant and is expected to open in October. Grant manages two other bond funds, Fidelity's Spartan Investment Grade Bond Fund and its Investment Grade Fund, according to the Boston-based company.
"This fund should appeal to income-oriented investors who want to invest in the total US dollar-denominated bond market," Fidelity spokesman Vin Loporchio said. "The fund will have more investment flexibility than Fidelity's existing investment-grade bond funds, which do not typically invest in emerging-market debt or high-yield securities."
Fidelity in June filed with the Securities and Exchange Commission for Fidelity Ultra-Short Bond Fund and in April for Fidelity Inflation-Protected Bond Fund. The Inflation-Protected fund began investing on July 9; the Ultra-Short fund is expected to open later this quarter.
Four of the five best-selling categories of mutual funds in June were bond funds, and the trend should continue, Lowell said.
Aging baby boomers "are going to want investments that produce less gray hairs" than equity investments, Lowell said. "They are going to want instruments that let them reallocate their overall portfolios, most of which are still very heavily focused on stocks or equity funds."
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