Fidelity Strategic Real Return Fund (FSRRX) primarily invests in a combination of securities with inflation-fighting potential: inflation-protected debt securities, such as U.S. Treasury Inflation Protected Bonds; floating rate loans; commodity-linked notes and related investments; and real estate-related securities including real estate investment trusts (REITs).
Diversified market investing
Strategic Real Return focuses its investments on four markets that have historically responded to different economic factors. As a result, changes in the performance of the individual markets have shown the tendency to offset each other and reduce the volatility of the overall portfolio — although past performance is no guarantee of future results. Strategic Real Return Fund focuses on the following markets:
- U.S. Treasury Inflation Protected Bonds (U.S. TIPS) — bonds whose principal value is adjusted semiannually to rise and fall based on the Consumer Price Index (CPI), which is considered a broad measure of inflation.
- Floating rate high yield bank loans — securitized loans of non-investment-grade companies whose coupons "float" based on a fixed premium over a market rate for money, such as LIBOR, and thus tend to track the direction of interest rates.
- Commodity-linked notes & related investments— structured notes whose performance is linked to the performance of the Dow Jones AIG Commodities Index (associated with related investments in short-duration investment-grade securities). The performance of commodities has also shown a positive correlation to the CPI.
- REITs and other real estate-related securities (e.g., common and preferred stocks of REITs, collateralized mortgage-backed securities and other real-estate related debt, with an emphasis on lower quality debt securities) — stock and bonds that have historically demonstrated less sensitivity to interest rates than conventional investment-grade bonds and have performed better during past inflationary periods than REITs alone.
Things to keep in mind
- Bond funds contain interest rate risk (as interest rates rise bond prices usually fall); the risk of issuer default; and inflation risk.
- Lower-quality debt securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer.
- Investments in foreign securities, especially those in emerging markets, involve risks in addition to those of U.S. investments, including increased political and economic risks as well as exposure to currency fluctuations.
- Floating rate loans may not be fully collateralized, which may cause the floating rate loan to decline significantly in value.
- Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures and their value may be affected by the performance of the overall commodities baskets as well as weather, disease and regulatory developments.
- Changes in real estate values or economic conditions can have a positive or negative effect on issuers in the real estate industry, which may affect the fund.
- Stock values fluctuate in response to the activities of individual companies and general market and economic conditions.
- Although the fund is invested across a variety of fixed-income and equity related securities, it is considered non-diversified as it can invest a greater portion of assets in securities of individual issuers than a diversified fund.