FUNDS

Jim Lowell, editor-in-chief of Fidelity Investor, says inflation is both inevitable and overestimated. Consider investments that do well whether it flares or not.

Whether I’m speaking with clients, taking live questions on my varied [television] appearances or responding directly to Fidelity Investor members, the question is the same: Won’t inflation overwhelm our markets all of a sudden?

There are a few assumptions nested in that question—among them, that inflation is a foregone conclusion, is already a clear and present danger, and is a purely negative factor.

Now, I think inflation is likely a foregone conclusion. Further, I think that hyperinflation can’t be ruled out any more than it can be ruled in to current forecasts and maneuvers. So, inflation is a worry on a long list of worries; but it’s not near the top of my list.

While I think inflation is inevitable, I don’t see it anywhere I look, except in the form of a threat which serves as both a drag on investor confidence and a spur towards types of investments that ironically put those who are seeking to dodge the risks of inflation in greater harm’s way.

Remember that inflation isn’t only a negative event. Trying to avoid inflation rather than engage in the opportunities it presents makes little investment sense. Many of the following funds could be held whether inflation ever rose or not—they function well as hedges against our equity stakes.

Fidelity Capital & Income (FAGIX). Manager Mark Notkin has been managing the fund since July 2003. He invests in both stocks and bonds, concentrating mostly on lower-quality bonds. He also invests in companies in troubled financial situations. The fund began trading in November 1977 and has a market value of over $11.5 billion. (This fund closed Monday at $8.86—Editor.)

Fidelity Floating Rate High Income (FFRHX). Manager Christine McConnell has been managing the fund since August 2000. She invests in floating-rate loans and other floating-rate investments, money market and investment-grade investments, and repurchase agreements. She also invests in companies in troubled financial situations. The fund began trading in August 2000 and has a market value of almost $3 billion. (This fund closed Monday at $9.55—Editor.)

Fidelity High Income (SPHIX). Manager Fred Hoff has been managing the fund since June 2000. He invests in income-producing bonds (especially low-quality), preferred stock, convertible securities, and stocks. He also invests in companies in troubled financial situations. The fund began trading in August 1990 and has a market value of over $7 billion. (This fund closed Monday at $8.61—Editor.)

Fidelity Strategic Income (FSICX). Managers Joanna Bewick and Chris Sharpe began managing the fund in April 2008 and June 2009, respectively. They invest approximately 40% in high-yield investments, 30% in government and investment-grade investments, and 15% in both emerging markets and international developed market investments. The fund began trading in May 1998 and has a market value of over $7 billion. (This fund closed Monday at $10.91—Editor.)

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Tickers Mentioned: FAGIX, FFRHX, SPHIX, FSCIX

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