Income from New Markets

03/10/2015 10:00 am EST


Genia Turanova

Editor, Leeb Income Performance

“A few months ago we added a fund that specializes in emerging markets to the Mutual Funds portfolio, a somewhat controversial move given the turmoil in some emerging countries,” recalls Genia Turanova, editor of Leeb Income Performance Letter.

We cited diversification as one reason behind the recommendation for Fidelity New Markets Income (FNMIX). Still, emerging market investing carries many risks, including country, currency, and political, regulatory, and economic risks.

Emerging market bonds, further, are not immune to the risks of all fixed-income securities: interest rate, credit, and issuer risks, which include the risk of default.

On the other hand, sectors where you can find yields higher than those available from the bonds of emerging markets (higher yields are offered to compensate for risks) are few and far between.

Our conclusion: don’t ignore the sector, but know your risks and invest with the best professionals available.

This is why we are still comfortable with the Fidelity New Markets fund. The manager currently at the helm, John H. Carlson, has led the fund since 1995.

His experience in emerging markets is extensive and his record has been very strong: consider that John Carlson has won the Lipper Award for the best 5-year record for Multi-Sector Fixed Income Portfolio Manager (1999) and the Morningstar Fixed Income Portfolio Manager of the Year (2011).

We also consider that Morningstar assesses the fund’s risk within its category as average, while the fund’s historical returns have been higher-than-average.

The fund also stands out in terms of rankings: it has strongly outperformed its peers, ranking in the top 28% for the past 15-year period, 15% for the past 10 period, top 13% for the past five year period, and top 11 for the past three years.

What to do now: Fidelity New Markets Income fund remains a recommendation.

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