Fidelity fighting to keep fixed-income momentum

Fidelity Investments, which built its reputation on picking growth stocks, is turning its attention to its bond department.

The Boston behemoth plans to hire three global bond managers this year, bringing the number of managers in its $217 billion bond group up to 21, compared with 15 in 2008. The move is intended to help Fidelity keep pace with shifting demographics spurred by aging baby boomers.

“We're seeing baby boomers continue to shift away from high-growth assets and toward capital preservation and income,” said Charles Morrison, president of the fixed-income group. “Fixed income is a strong business for us, and we are investing heavily in it.”

As is the case at many other mutual fund companies, fixed income has been a primary driver of growth at Fidelity ever since the 2008-09 financial crisis dampened investors' enthusiasm for stocks.

Fidelity's bond fund assets have nearly doubled since the end of 2008, climbing to $217 billion, from $109 billion, according to Morningstar Inc. Assets in the company's stock funds, meanwhile, climbed 50% to $594 billion, from $395 billion, according to Morningstar.

TORRENT OF INFLOWS

Industrywide, assets in bond mutual funds total $2.2 trillion, up from $1.1 trillion at the end of 2009, according to Morningstar.

The torrent of inflows into fixed-income funds has some experts worried that a bond bubble could be brewing, particularly since interest rates have nowhere to go but up.

Robert Brown, head of the bond group at Fidelity, isn't concerned about that, however.

“Whether bonds are in a bubble or still a growth area, our view is that it's a good long-term investment,” he said.

Fidelity's fixed-income success thus far has come without a single flagship fixed-income fund.

“They don't have a reputation for having a stellar product,” said Jeff Tjornehoj, senior research analyst at Lipper Inc.

In fact, Fidelity doesn't register at all in some financial advisers' minds when it comes to fixed income.

“When I think of bonds, I think of Pimco,” said Rick Kahler, president of Kahler Financial Group Inc., referring to Pacific Investment Management Co. LLC.

“People are driven by brands,” said James Lowell, editor of the Fidelity Investor newsletter.

“When people think of Fidelity, they think of growth stocks; when they think of indexing, they think of [The Vanguard Group Inc.]. Usually it takes an act of God to change that thinking,” Mr. Lowell said.

“Fidelity does have the ability to be a one-stop bond shop,” he said. “That brand prejudice has made the fixed-income an overlooked asset at Fidelity.”

“AREA OF FOCUS’

One of the soon-to-be-hired portfolio managers will be based in Fidelity's London office, which opened in 2008 and has grown to 26 employees. The other two will be based domestically.

Fidelity plans to focus its fixed-income growth on global and international strategies, and multiasset income funds, and eventually, there may even be an alternative fixed-income fund.

Mr. Morrison stressed that there are no alternative fixed-income strategies planned, but it is something at which the product team is looking.

“It's an area of focus,” he said. “We'd have to make sure we get our alts offering in the right place for us.”

The steps toward global bonds could resonate with advisers who are looking to diversify away from the interest rate risk and low yields in the United States.

Mr. Kahler has a 50/50 allocation to U.S. and international bonds for his clients.

Helen Huntley, a financial adviser at Holifield Huntley Financial Advisers, is attracted to global bonds for the income potential.

“You get better yields for the same credit quality,” she said.

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