Fidelity Capital and Income Fund Performance Research

Fidelity Capital & Income Fund (FAGIX) is a $12.57 billion investment portfolio that belongs to Morningstar’s high-yield bond category, with a five-star rating across the board.

This conservative stock fund invests in stocks and fixed income securities rated below investment grade. These securities are low-quality debt securities issued by companies that are in trouble or financially uncertain.Due to the large allocation of stocks and lower-rated bonds, the fund is one of the most aggressive options in the junk bond field.

Performance overview

Investors willing to bear the inherent risks of the tool have historically been rewarded. As of October 15, 2020, the fund’s five-year average annual return rate was 8.84%, which is more than 5% higher than Morningstar’s June 2020 average return rate of 3.45% in the high-yield bond category. The 10-year average return rate of the fund was 6.91%, ranking among the top 2% of the 350 funds measured in this category.

The fund’s 3.26% rate of return is a consideration because its role is to provide current income, even during the fund’s downturn.Junk bonds are considered to be particularly risky fixed-income investments, as evidenced by the -4% return of the high-yield bond category in 2015, as investors shifted from low-rated securities to high-quality investments.However, FAGIX has outperformed almost any other junk bond fund in the longer term.

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Volatility risk

In particular, the high level of liquidity risk and default risk has caused large fluctuations in the junk bond space to be greater than normal. Taking into account 60 one-month observations in the past five years, the fund has witnessed more than 3% stock price fluctuations in 19 of those months.This type of volatility is not as high as you would expect from an equity fund, but for fixed income funds, it is considered unstable.

Historically, the fund has experienced such volatility approximately 28% of the time. Although this statistic may seem unimportant, it does show that stock prices will indeed fluctuate sharply and should be expected. During the 2008-2009 financial crisis, when the price of any type of risky asset fell sharply, the fund fluctuated more than 6% in nine months during the 13-month period from September 2008 to October 2009 .This is a particularly unstable period, but it shows the type of risk in the worst-case scenario.

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August and September are swing months

The late summer months are not good for shareholders. The average decline in August was 0.3%, and September was closely followed with a decline of 0.7%. These two months were negatively affected by huge losses in 2011, and the fund lost approximately 6% of its value every month. FAGIX experienced a 5% decline in 2015, resulting in this year’s low point being more than 10% lower than the high point, instead of eight months ago. However, this trend is sometimes reversed, and the fund’s positive returns in August and September 2009 were 2% and 7%, respectively.

On the more positive side, during the six-year period from 2010 to 2015, the sum of February, April, and October never made shareholders lose money. In February and October, earnings were realized for six consecutive years, while April brought positive returns to shareholders. From 2006 to 2017 for 12 consecutive years.

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Yield affects returns

High-yield bond funds usually pay higher-than-average dividend yields to reflect the higher-than-average risk borne by shareholders through investment. As of November 2020, the fund’s 30-day rate of return is 3.07%.Since 2011, its yield has consistently exceeded 6% at several points.

Although the stock price of junk bond funds is highly risky, the dividend yield they provide helps offset some of the risk. Funds that provide a 0.5% monthly dividend can usually eliminate any share price losses witnessed during the month. Dividend yields will fluctuate over time, but the returns provided by high-yield bond funds help increase the overall return of the fund. This is the high-yield and price volatility that Fidelity Capital and income funds often experience.


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