Today, the Fidelity Income Allocation Fund is a tactically-focused fund that invests in a mix of fixed-income asset classes and income-oriented equities. Before July 2010, it was a dramatically different offering, known as the Fidelity Monthly High Income Fund, which invested primarily in income trusts. The downside is that this makes it difficult to get a sense of the longer term performance of the fund, because anything before 2010 is not applicable.
The fund has a neutral asset mix of 70% fixed income and 30% equity. The managers have a fair degree of flexibility, and can take the equity weight as high as 50%. At the end of January, the fund was fairly neutral to its target weight, holding 28% in equities, 7% in cash, and the rest in a mix of fixed income investments.
The fixed-income portion will typically be quite diversified, with the managers having the flexibility to invest in any type of fixed income investment they feel best for the fund based on their view of the current investing climate. Currently, it is overweight corporates, and the managers, have added a small allocation to convertible bonds for their “defensive equity” characteristics.
Because the fund is made up of other Fidelity-managed funds, it is well diversified, holding more than a thousand bond positions and nearly 300 equity names.
The team led by Geoff Stein, David D. Wolf, and Derek Young (now co-lead with Stein of Fidelity’s Canadian asset allocation team) is one of the strongest asset allocation teams around today and have done a great job helming the fund over the past couple of years. For the three years ending October 31, the fund has delivered an average annual compound rate of return of 7.7% per year, handily outpacing the benchmark and keeping it in the first quartile for performance.
The fund’s overall performance gives it a Fundata FundGrade A Grade for October, and its consistent A-Grade performance has merited the Fundata FundGrade A+ Award for three consecutive years, 2011-2013.
The biggest worry that I have is the fund’s interest rate sensitivity. With a minimum allocation of 50% to bonds, the absolute returns are likely to suffer when rates do begin to move higher. Still, I would expect that this fund will hold up better than others, given the quality of the underlying investment funds and the management teams involved.
Fund company: Fidelity Investments Canada
Fund type: Canadian Fixed Income Balanced
Style: Tactical Asset Allocation
Risk level: Low-Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Geoff Stein since May 2011; David D. Wolf since March 2014
Fund code: FID 294 (front end), FID 594 (DSC)
Minimum investment: $500
Fundata FundGrade® Rating: A
Fundata FundGrade A+ Award 2011-13
See the Fundata FundCard for more details.
Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson's Top Funds Report and Mutual Fund and ETF Update, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.
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