Is FCONX A Strong Bond Fund Right Now?

If investors are looking at the Government Mortgage - Short fund category, Fidelity Conservative Income Bond (FCONX) could be a potential option. FCONX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on nine forecasting factors like size, cost, and past performance.

Objective

FCONX is classified in the Government Mortgage - Short segment by Zacks, which is full of possibilities. Government Mortgage - Short funds focus on the mortgage-backed securities (MBS) market, which packages mortgages together and then sells off the pooled securities as a MBS. Focusing on securities that have less than three years until maturity, this category gives funds a lower yield but lower interest rate sensitivity.

History of Fund/Manager

Fidelity is responsible for FCONX, and the company is based out of Boston, MA. The Fidelity Conservative Income Bond made its debut in March of 2011 and FCONX has managed to accumulate roughly $2.45 billion in assets, as of the most recently available information. The fund's current manager, Robert Galusza, has been in charge of the fund since November of 2015.

Performance

Investors naturally seek funds with strong performance. This fund carries a 5-year annualized total return of 0.86%, and is in the top third among its category peers. But if you are looking for a shorter time frame, it is also worth looking at its 3-year annualized total return of 1.27%, which places it in the top third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. Compared to the category average of 4.93%, the standard deviation of FCONX over the past three years is 0.18%. The standard deviation of the fund over the past 5 years is 0.17% compared to the category average of 4.83%. This makes the fund less volatile than its peers over the past half-decade.

Bond Duration

Modified duration is a measure of a given bond's interest rate sensitivity, and is a metric that's a good way to judge how fixed income securities will respond in a shifting rate environment.

If you believe interest rates will rise, this is an important factor to look at. FCONX has a modified duration of 0.16, which suggests that the fund will decline 0.16% for every hundred-basis-point increase in interest rates.

Income

We must remember to consider the fund's average coupon, as income is traditionally a big reason for purchasing a fixed income security. This metric takes a look at the average payout by the fund in a given year. For example, this fund's average coupon of 2.64% means that a $10,000 investment should result in a yearly payout of $264.

While a higher coupon is good for when you want a strong level of current income, it could present a reinvestment risk if rates are lower in the future when compared to the initial purchase date of the bond.

Investors also need to consider risk relative to broad benchmarks, as income is only one part of the bond picture. FCONX carries a beta of 0, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 0.32, which measures performance on a risk-adjusted basis.

Expenses

As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, FCONX is a no load fund. It has an expense ratio of 0.35% compared to the category average of 0.85%. From a cost perspective, FCONX is actually cheaper than its peers.

Investors need to be aware that with this product, the minimum initial investment is $2,500; each subsequent investment has no minimum amount.

Bottom Line

Overall, Fidelity Conservative Income Bond ( FCONX ) has a high Zacks Mutual Fund rank, and in conjunction with its comparatively strong performance, average downside risk, and lower fees, this fund looks like a good potential choice for investors right now.

Your research on the Government Mortgage - Short segment doesn't have to stop here. You can check out all the great mutual fund tools we have to offer by going to www.zacks.com/funds/mutual-funds to see the additional features we offer as well for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.