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This Bond Fund Proves It's Hip to Be Square

Silver-rated Fidelity Short-Term Bond has a risk-conscious approach that offers downside protection in more-challenging market environments.


Emory Zink: Fidelity Short-Term Bond (FSHBX) proves that in uncertain fixed-income markets, it's hip to be square. After rough underperformance during '07 and '08, the reins on this fund were handed to co-portfolio managers Rob Galusza and Robin Foley--who helped the portfolio regain its footing with a risk-conscious approach that includes higher allocations to government and AAA-rated bonds relative to short-term bond peers, as well as a significantly shorter duration than the category average. Muted risk-taking within the fund means that investors shouldn't expect runaway performance, but it does offer downside protection in more-challenging market environments.

While the fund adheres to conservative investment guide rails, it isn't without its tactical tilts. Galusza and Foley have positioned the portfolio to benefit from a U.S. economic recovery by increasing allocations to consumer-focused company bonds and out-of-benchmark asset-backed securities that primarily include auto loans and credit card debt. Roughly a quarter of the portfolio is dedicated to financial corporates, which have been a boon for bondholders since government legislation tightened banking balance sheets following the financial crisis.

This fund's conservative bent, paired with thoughtful sector allocation and rigorous security selection, has contributed to compelling risk-adjusted performance since Galusza and Foley took over in 2008. Combining a solid process with a low price tag, this fund earns a Morningstar Analyst Rating of Silver.

Emory Zink does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.