A Unique Approach to Investing in High Yield Bonds: Fidelity Focused High Income Fund
Unlike most other high yield funds, the Fidelity Focused High Income Fund focuses its investments primarily on securities rated BB - the bond rating just below investment-grade.
The fund's investment strategy offers investors the potential for higher returns, when compared to funds with a larger proportion of holdings rated investment-grade - although not without additional volatility.
The Fidelity Focused High Income Fund also offers the potential for reduced volatility, when compared to high-yield funds with more assets invested in bonds rated below BB. Remember that lower returns are also typically associated with lower volatility.
The fund can also potentially offer more diversification, when added to a portfolio of stocks or investment-grade bonds. High yield bonds have historically performed differently from each of these other investment categories.
Who May Want to Invest
Investors who may want to consider the Fidelity Focused High Income Fund are those interested in:
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Exposure to high yield bonds, to diversify an equity or investment-grade debt portfolio.
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An alternative to holding a few lower-quality individual bonds, in order to take advantage of a mutual fund's ability to spread credit risk among a hundred or more issuers.
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A way potentially to own "crossover credits" — bonds rated investment-grade by one major agency but below-investment-grade by another.
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A complement to an existing allocation in other high yield credit tiers.
Fidelity High Yield Bond Funds
Click on the fund names below for more information on the funds.
High level of current income. May also seek capital appreciation.
High level of current income. Capital growth may also be considered.
Combination of income and capital growth.
Investment Strategy Highlights
Normally invests primarily in securities rated BB. Fund currently intends to limit common stocks to 10% of total assets.
Managed to have similar credit quality distribution to an index - as of 4/30/04, Merrill Lynch® U.S. High Yield Master II Index (which includes bonds rated B and lower in addition to BB).* Fund currently intends to limit common stocks to 10% of total assets.
Fund expects to invest majority of assets in debt securities and convertible securities, with an emphasis on lower quality debt securities.
Things to Keep in Mind
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Although bonds generally present less short-term risk and volatility than stocks, bonds do entail interest rate risk; that is, as interest rates rise, bond prices usually fall, and vice versa. Bonds also entail the risk of default, or the risk that an issuer will be unable to make income or principal payments. Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.
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Additionally, bonds and short-term investments entail greater inflation risk than stocks — defined as the risk that the return of an investment will not keep up with increases in the prices of goods and services.
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High-yield bond funds may also invest in securities that are in default, and securities of foreign as well as domestic issuers. Investments in foreign securities involve risks in addition to those of U.S. investments, such as increased political and economic risks as well as exposure to currency fluctuations.
*The Merrill Lynch® U.S. High Yield Master II Index is an unmanaged market-value-weighted index of all domestic and Yankee high-yield bonds, including deferred interest bonds and payment-in-kind securities. Issues included in the index have maturities of at least one year and have a credit rating lower than BBB-Baa3, but are not in default. You may not invest directly in an index.
Please carefully consider the fund's investment objectives, risks, charges and expenses before investing. For this and other information, call or write to Fidelity for a free prospectus, or view one online. Read it carefully before you invest or send money.
