Fixed Income

Fidelity fixated on fixed-income momentum

Fund firm rolling out more products, adding more portfolio managers; desire for capital preservation fueling the boom

Fidelity Investments had a record first quarter of fixed-income sales. But the fund firm is fighting to keep in step with the shifting needs of the baby boomer generation by expanding its fixed-income team and focusing on new products.

“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.”

Fidelity had $6.9 billion of inflows into its taxable bond funds in the first quarter, up from $2.4 billion in the first quarter of 2011, according to Lipper Inc.

The company is in the process of hiring three new global-focused fixed-income portfolio managers. One will be based in its London office, which was established in 2008 and has grown to 26 employees today. The other two will be based in the U.S. Several strategists also will be added.

The focus on fixed income comes as investors continue to pile into bonds. Assets in taxable bond funds have more than doubled to more than $2.2 trillion since 2009 because investors were looking for a safe haven from the volatility and risks of equities.

Fidelity is among the firms that have been boosted by the great bond rush. Fixed-income, including money market funds, now makes up about half of its $1.4 trillion in assets, up from about 35% of assets before the financial crisis.

The stampede into the fixed-income market has some experts worried there may be a bubble in bonds developing, particularly with interest rates’ having nowhere to go but up. But that doesn’t concern Fidelity today.

“Whether bonds are in a bubble or still a growth area, our view is that it’s a good long-term investment,” said Robert Brown, head of the bond group. “That’s our long-term view, but we’re focusing first on the shareholder.”

To better serve shareholders, Fidelity is focusing prepping global and international bond funds, multiasset income funds, and even (gasp) are starting to think about alternatives.

Mr. Morrison stressed there were no alternative fixed-income strategies imminent, but the product team is considering them. “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.”