New Markets for Emerging Income

11/06/2014 10:00 am EST

Focus: FUNDS

Genia Turanova

Editor, Leeb Income Performance

Whenever you put money into an actively managed mutual fund, you're putting your faith in the fund's investment manager, whose strategy, vision, and ability to execute are all-important, explains Genia Turanova in The Complete Investor.

Fidelity New Markets Income Fund (FNMIX) is run by a pro who knows his bonds.

With a truly outstanding record in a particularly challenging investment category, this fund is in the deft hands of John Carlson, its manager since 1995.

Emerging market bonds carry many risks, including country, currency, and political, regulatory, and economic risks. And that's on top of risks common to all fixed-income securities: interest rate, credit, and issuer risks, which include the risk of default.

To compensate, bonds of emerging markets offer higher yield. But their yields may not fully reflect the risks; it takes experience and investment acumen to assess each bond, making Carlson's role vital.

Fidelity New Markets has strongly outperformed long-term. It ranks in the top 13% of the category for the past ten-year period and the top 4% for the past three years, as well as, so far in 2014.

The fund focuses mainly on debt issued by companies and governments in emerging economies. It also can invest lesser amounts in equities of emerging market issuers, in debt securities of other non-emerging foreign issuers, and in lower-quality US debt.

While turnover at more than 130% is high, that comes with the territory, and the fund is well diversified. Cash levels have been relatively low and the yield is attractive at 4.5%.

The fund is an excellent choice for investors interested in emerging market exposure and willing to tolerate some risk and volatility.

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