Reviewing the 5 Best Fidelity Mutual Funds for Inflation Protection Investors to Own

Alex Liebetrau

Mutual funds

Five best Fidelity mutual funds for inflation-wary investors to own offer hedges amid hefty price hikes for many products and services during the past year.

With extra money flowing into the economy from increased federal spending and macroeconomic events, such as Russia’s invasion of Ukraine, supply chain problems have worsened and the commodity prices have climbed. The annual inflation rate in the United States accelerated to 7.9% in February of 2022, the highest since January of 1982, Trading Economics reported.

Energy remained the biggest contributor, notching a 25.6% increase, with gasoline prices surging 38% . Inflation accelerated 4.7% for shelter; 7.9% for food; 8.6% for food at home; 12.4% for new vehicles; and 41.2% for used cars and trucks. Rising prices are projected to extend into the future by the U.S. Federal Reserve Bank (Fed), highlighting the necessity for Inflation Protected Mutual Funds.

Boston-based Fidelity is an investment management company, whose funds are widely known for their active management styles. Fidelity offers a wide variety of bond and stock mutual funds. Some mutual funds use “Inflation-Protected Bond and Bank Loan funds” that have demonstrated a consistent track record of beating inflation historically, according to Fidelity. In this article, we examine five Fidelity mutual funds for inflation-protection investors to own for safeguarding their money from the rising prices that consumers have seen recently.

5 Best Fidelity Mutual Funds for Inflation-Protection Investors: FLVCX

Fidelity Leveraged Company Stock Fund (FLVCX) provides an opportunity for investors to earn increased returns by accepting heightened risk. Its managers have emulated this idea by topping its category for the 15 years prior to September 2021, keeping 80% of its assets invested in companies rated BBB or worse by the Better Business Bureau. For the active management style employed by Mark Notkin and Brian Chang, the fund charges an expense ratio of 0.75%. There is no minimum investment, making the fund available for any individual investor.

This fund holds many large growth companies, with top holdings of Caesars Entertainment Inc. (NASDAQ: CZR), Alphabet (NASDAQ: GOOGL) and Boyd Gaming Corp. (NYSE: BYD). The fund has a high Morningstar risk rating but has above-average returns to risk. FLVCX has returned 35.6%, 26.74%, and 26.16% for 2019, 2020 and 2021, respectively. For investors willing to take on greater risk, this fund may fit their investing style; it will definitely succeed at beating out inflation over the next few years if its performance continues.

5 Best Fidelity Mutual Funds for Inflation-Protection Investors: FASIX

Staying true to its name, the Fidelity Asset Manager 20% Fund (FASIX) currently allocates 19% and 6.5% of its 6.7 billion in assets into U.S. equity and non-U.S. equity, respectively; it then allocates 47.5% into fixed income and holds an additional 25% as cash. This strategy provides a less risky approach for investors to see their investment appreciate. The returns of this fund are also driven by holding fixed-income investments that are not investment grade and thus earning increased interest. The available cash on hand can also be used for new fixed-income investments, providing an opportunity for the fund to capitalize on rising interest rates.

The beta of this fund is remarkably low at 0.46, indicating that the fund is less volatile in comparison with the market. However, the fund is less likely to fully capture the growth of the market during bull markets. The fund is available to any individual investors, and has an expense ratio of 0.51%. Its performance is relatively standard in comparison with the category average, earning 10.64%, 8.62% and 4.04% for 2019, 2020 and 2021, respectively. For risk-averse investors, this fund may be a good choice. It captures a 15-30% share of the equity markets, while greatly reducing volatility through fixed-income investments.

5 Best Fidelity Mutual Funds for Inflation-Protection Investors: FIPDX

    Treasury Inflation-Protected Securities (TIPS) are the core component of the Fidelity Inflation-Protected Bond Index (FIPDX). As you may know, TIPS are offered by the U.S. government. This fund is 100% weighted in a variety of these securities, and thus directly matches the index for bonds of this type. These bonds are guaranteed by the U.S. government, and the fund charges a 0.05% expense ratio. This fund is also available to any individual investor with no minimum initial investment.

How do TIPS work? The fund initially gives the government the principal of the bond with the promise that the government will pay back the fund with bi-annual interest payments at a fixed rate and the bond’s principal amount at the bond’s maturity date. TIPS function differently than non inflation-protected bonds, as the principal of the bond is adjusted for inflation. In periods of inflation, the principal of the bond consequently will increase, thus the fixed rate of interest on the principal will now pay back more money. When the bond matures, the fund will receive either the adjusted principal or the original principal, whichever is higher. This option minimizes risk for investors looking to beat inflation in today’s markets, and investors stand to make higher returns when actual inflation is higher than expected inflation in the market.  

5 Best Fidelity Mutual Funds for Inflation-Protection Investors: FSRRX

The fundamental idea of the Fidelity Strategic Real Return Fund (FSRRX) is to balance riskier equity investments in small to mid- cap companies with fixed income strategies. This fund seeks to capture high growth opportunities while reducing overall risk and volatility of the fund. The fund charges an expense ratio of 0.7% and its portfolio holds around 20% of its $525 million of assets in U.S. equity, along with 53% of its assets in fixed income. Of the fixed-income investments, the fund holds 46% of investment-grade bonds, while the remaining 54% of bonds are BBB rated and lower. This gives the fund higher yield on the fixed-income investments that they own. However, the strategy exposes the fund to the risk that these companies may default.

The fund has performed well in the short term, and is currently outperforming the category average in 2022. The fund has returned 17.63%, 9.48%, and 6.76% over 1-year, 3-year and 5-year time frames, respectively. It evidently has utilized its high-yield, fixed-income and mid-cap U.S. equity mix to beat inflation in today’s markets. This fund is a good option for investors who can accept the risk inherent in the high-yield, fixed income and small to mid-cap equity investments to realize increased returns.

5 Best Fidelity Mutual Funds for Inflation: FFRHX

The central idea of Fidelity Floating Rate High-Income (FFRHX) is to seek high-yield, fixed-income investments through large bank loans. The fund charges an expense ratio of 0.67%, ranking in the cheapest quartile amongst its peers. It holds around 60% of its $12.9 billion in assets in B rated bonds and 25% in BB rated bonds. This fund has actively worked to reduce risk in these investments, seeking bank loans larger than $300 million, which has benefited the fund in past years.

Over a 15-year time horizon, the fund has consistently earned an average 3.65%. This has remained extremely consistent, earning the fund a beta of 0.23. Thus the fund is relatively stable. For investors interested in long-term investments, the fund may be worth considering.

5 Best Fidelity Mutual Funds for Inflation

Inflation is a pressing issue for investors right now. In this article, we examined five Fidelity mutual funds for inflation-protection investors to safeguard against rising prices that consumers have seen recently. These five Fidelity mutual funds for inflation-wary investors.

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