Fidelity Investments [see profile] has launched a series of funds that will combine target date portfolios and municipal-bond investing, Bloombergreports.
The Fidelity Defined Maturity Funds have maturity dates ranging from 2015 to 2021, and will pursue investment grade municipal bonds with maturities close to those dates, the funds' PM,
Mark Sommer, told the wire service.
"If you were to buy a traditional bond fund, even for a shorter duration, and rates were to go up dramatically just on the eve of when you needed your money, the value of those bond funds would go down," Sommer said. In comparison, Fidelity's new offerings "will start out at longer durations and then gradually decline to somewhere near zero."
The total operating expenses for retail and institutional shares of the funds are 40 basis points and and 65 basis points for adviser shares.
Company Press Release
FIDELITY INVESTMENTS® LAUNCHES FIRST ACTIVELY MANAGED DEFINED MATURITY MUNICIPAL INCOME FUNDS
Four Fixed-Income Funds Seek to Fill a Gap in Municipal Bond Investing
BOSTON, June 22, 2011 -- Fidelity Investments®, a leading global asset management firm, today announced the launch of the Fidelity Defined Maturity Funds, a series of four national municipal income funds, each with a defined maturity date. Managed by Fidelity’s municipal bond team, recognized for its excellence with various awards over the years1, the Defined Maturity Funds seek to bridge the gap between individual bonds and bond funds, and are the first actively managed municipal bond defined-maturity funds in the market.
The Fidelity Defined Maturity Funds are open-end mutual funds that seek to incorporate some of the attributes of individual bonds2. The funds are professionally managed, diversified portfolios of municipal securities, with defined end dates. The Defined Maturity Funds invest primarily in investment-grade municipal bonds that are generally clustered around the funds’ defined end dates and seek as high a level of current income, exempt from federal income tax, as is consistent with the preservation of capital. To protect existing shareholders and to ensure orderly liquidation of the funds, the Defined Maturity Funds will close to purchases for new and existing investors approximately 12 months prior to their maturity date. Each fund plans to liquidate and distribute its net assets to investors shortly after its defined end date.
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1 Morningstar Fixed Income Manager of the Year (2003); nominee, 2008; nominee for Fixed Income Manager of the Decade (2010). Kiplinger’s Top 25 Best Mutual Funds (2009) ‐ Fidelity’s Intermediate Muni Income Fund is the only municipal fund on the list. 2 Both individual bonds and bond mutual funds provide distinct benefits and risks that should always be carefully considered before investing.
“When compared to a traditional bond fund, the price volatility of the Defined Maturity Funds is designed to decline as their underlying bonds approach their maturity. However, unlike individual bonds, these funds do not return a pre-determined amount at the funds’ defined end dates,” said Mark Sommer, co-manager of the Fidelity Defined Maturity Funds. “These funds may be appropriate for income-seeking investors who are interested in combining the defined-maturity feature of individual bonds with the many features of bond funds, including diversification and professional management, thus removing much of the legwork of individual bond investing.”
The initial series consists of four funds with different maturity dates of four years (Fidelity Municipal Income 2015 Fund), six years (Fidelity Municipal Income 2017 Fund), eight years (Fidelity Municipal Income 2019 Fund) and 10 years (Fidelity Municipal Income 2021 Fund). A Single Investment Approach. Many Ways to Apply It.
The Defined Maturity Funds are flexible investment options designed to help meet the needs of investors by seeking to provide federally tax-exempt income that they can either receive as a distribution or reinvest to maximize payout potential at maturity. Investors could use the Defined Maturity Funds in three potential ways: as an income vehicle, an investment vehicle, or as a laddering opportunity.
1. Generate a federally tax-free income stream: The Defined Maturity Funds seek to provide federally tax-exempt income via monthly distributions, which investors have the option of withdrawing as income. While the distribution amounts will fluctuate, the funds may be an appropriate option for investors looking to receive monthly income for their cash flow needs.
2. Reinvest to maximize payout potential: Investors could choose to reinvest distributions in order to maximize a fund’s payout potential at maturity. While the funds do not guarantee a pre-determined amount, their declining price volatility as their defined end dates approach may help investors plan for their financial needs, if they hold the funds to maturity.
3. Build bond ladders for ongoing income: Investors and institutions use bond ladders to attempt to generate income streams for prolonged time horizons. But building bond ladders with individual securities can be costly and time consuming. With the Defined Maturity Fund series, investors have the ability to create a laddering strategy by investing in multiple funds across a range of maturities.
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Investments in a Defined Maturity Fund are not guaranteed at any time, including at Fund’s defined end date. Unlike individual bonds, these are mutual funds subject to fund management fees and may not be appropriate for bond investors looking for greater control over credit quality and maturity dates. Although the price volatility of the funds is designed to decline as they approach their defined end date, shareholders who sell the fund before this date could experience more price (NAV) uncertainty. A Deep, Experienced Team
A recognized industry leader in municipal bond investing, Fidelity has resources and scale to navigate a complex market. Its municipal team is comprised of 24 members with an average experience of 13 years. The Defined Maturity Funds are co-managed by three portfolio managers, Mark Sommer, Kevin Ramundo, and Jamie Pagliocco.
Sommer joined Fidelity’s Fixed Income Quantitative Group in 1992 and was appointed portfolio manager in 1997. Currently, he manages both state-specific and national municipal bond funds across the maturity spectrum.
Ramundo joined Fidelity in 2000 as a research analyst and in 2010 was appointed portfolio manager. He currently manages several state-specific municipal bond funds and co-manages national municipal bond funds across the maturity spectrum.
Pagliocco joined Fidelity in 2001 and was appointed portfolio manager in 2006. Today, he is the lead manager for Fidelity Municipal Income Fund, Fidelity Advisor Municipal Income, and Fidelity Tax-Free Bond Fund, as well as several state-specific municipal bond funds. In 2010, Pagliocco was promoted to the role of Director of Municipal Bond Portfolio Managers.
The new funds are available directly to investors, as well as through advisors at banks, insurance companies and broker-dealers via Fidelity Advisor Defined Maturity Funds (Classes A and Institutional). Each Defined Maturity Fund’s retail class is sold without a load and has a total expense ratio of 0.40%. The Advisor share classes have traditional Fidelity Advisor short-term bond fund pricing with a total expense ratio of 0.65% for Class A and 0.40% for the Institutional Class.
About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $3.7 trillion, including managed assets of more than $1.6 trillion, as of May 31, 2011. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.
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