Bond prices and interest rates move in opposite directions, so bond market volatility was high in 2022 and 2023, when the Federal Reserve raised the federal funds rate at a record pace.
But uncertainty about the path of interest rates can destabilize bonds , too, so price swings have continued into 2024. "It's been a challenging time," says Elizah McLaughlin , who manages the Fidelity Intermediate Municipal Income Fund ( FLTMX ) with Cormac Cullen and Michael Maka .
Even so, over the past 12 months, Intermediate Municipal Income – a member of the Kiplinger 25, our favorite no-load mutual funds – turned in a 2.7% return, which outpaced the 2.1% gain in the Bloomberg Municipal 1-15 Year index.
"Our goal is to deliver a consistent risk-adjusted return," says McLaughlin. "We're not trying to shoot out the lights every year."
She and her cohorts focus on municipal bonds , which pay income that is exempt from federal taxes. Their process is very "collaborative," which McLaughlin says differentiates their fund from others.
The managers work with 13 fundamental analysts, three dedicated traders and a quantitative analyst. They sit together in a custom-designed space in Merrimack, New Hampshire, where most of Fidelity's bond pickers are based. "It's just a constant flow of information," she says, adding that the depth of research the team puts into securities is another differentiator. "That's where our expertise comes into play," says McLaughlin.
That know-how helped this past year. The Fidelity mutual fund is heavily tilted toward revenue bonds, which are IOUs for projects such as toll roads that generate income to pay off bondholders. Some of these bonds tend to be less volatile when interest rates are rising, which helped the fund's performance in the early part of the past 12 months.
In more recent months, the fund's heftier stake in revenue bonds with single-A, triple-B and lower credit ratings, relative to the benchmark, boosted the fund's return. Intermediate Muni Income yields 3.4%, a tax-equivalent 4.5% for investors in the 24% federal income tax bracket .
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here .
Related content
Most Popular
Comments / 0