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Investing in High Yield Companies

A non-investment grade or "high yield" company (sometimes also called a "leveraged" company) lacks the operating history or balance-sheet strength to merit an investment-grade bond rating from the major rating agencies. Fidelity can help you:

  • Decide whether an allocation to the debt or equity of these non-investment-grade companies is right for you, using Fidelity Portfolio Analysislock_green
  • Understand Fidelity Fund choices for investments that you intend to leave in place for at least a couple of years.

Short duration fund with objective of high current income and potential capital appreciation

Fidelity Short Duration High Income Fund (FSAHX) is a high yield bond fund that normally maintains an average duration of three years or less. The fund seeks a high level of current income, and the potential for capital appreciation, by investing primarily in short-duration, income-producing debt securities of lower credit quality. These securities are primarily bonds of domestic and foreign issuers, complemented by other types of investments such as floating rate bank loans issued by non-investment grade or "high yield" companies, as well as short duration, investment-grade debt.

Learn more about Fidelity Short Duration High Income Fund (FSAHX)

Bank loan fund with objective of high current income that tracks the direction of interest rates

Fidelity Floating Rate High Income Fund holds securities whose coupons tend to closely track the direction of interest rates. It's a daily-access fund holding the leveraged loans of high-yield companies, which are senior in standing to high-yield bonds, and have interest rates that reset frequently based on a short-term rate such as LIBOR (London Interbank Offered Rate). These two characteristics can potentially make the fund less subject to credit risk and interest-rate risk than might be the case with a longer-duration high-yield bond fund.

Learn more about Fidelity Floating Rate High Income Fund (FFRHX).

Things to keep in mind

  • The funds primarily invest in lower-quality debt securities (rated BB and below), which are issued by companies in troubled or uncertain financial condition. As a result, these securities are riskier than their investment-grade counterparts.
  • While investing in companies in troubled or uncertain financial condition may result in higher yields, there is an increased risk of default or price fluctuations due to changes in the credit quality of the issuer.
  • Floating rate loans are often lower-quality debt securities and generally are subject to restrictions on resale.
  • A floating rate loan may not be fully collateralized, which may cause the floating rate loan to decline significantly in value.

Funds that help take the work out of choosing fixed income investments

By allocating assets to several types of bonds that behave differently as market conditions change, these funds are well-positioned to take advantage of many potential market scenarios.

Fund Investment Objective Highlights Investment Strategy Highlights
Fidelity Total Bond Fund (FTBFX) Seeks a high level of current income. Uses the Barclays Capital U.S. Aggregate Bond Index1 as a guide in allocating assets across the investment-grade, high yield, and emerging market asset classes, and in managing the fund's overall interest rate risk. The fund may invest up to 20% of its assets in high yield and emerging market debt securities, and may invest in domestic and foreign issuers.
Fidelity Strategic Income Fund (FSICX) Seeks a high level of current income and may also seek capital appreciation. Invests primarily in debt securities, including lower-quality debt securities, allocated among four general investment categories using a neutral mix of approximately: 40% high yield, 30% U.S. Gov't and investment-grade debt, 15% emerging markets, 15% foreign markets

Things to keep in mind

  • Although bonds generally present less short-term risk and volatility than stocks, bonds do entail interest rate risk; that is, as interest rates rise, bond prices usually fall, and vice versa. Bonds also entail the risk of default, or the risk that an issuer will be unable to make income or principal payments. The bonds of below-investment-grade companies are more sensitive than investment-grade debt to the condition of the individual issuer, and thus involve less interest rate risk but greater risk of default or price changes due to potential changes in the credit quality of the issuer.
  • Additionally, bonds and short-term investments entail greater inflation risk than stocks-defined as the risk that the return of an investment will not keep up with increases in the prices of goods and services.
  • 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.

Funds that invest primarily in high-yield bonds, with strategies that are focused, broad, flexible, or global

Exposure to high yield bonds can help diversify an equity or investment-grade debt portfolio.

Fund Investment Objective Highlights Investment Strategy Highlights
Fidelity Focused High Income Fund (FHIFX) High level of current income. May also seek capital appreciation. Normally invests primarily in securities rated BB, and uses as its benchmark the BofA Merrill Lynch BB U.S. High Yield Constrained Index.2 Fund currently intends to limit common stocks to 10% of total assets.
Fidelity High Income Fund (SPHIX) High level of current income. Capital growth may also be considered. Managed to have similar credit quality distribution to its index, the BofA Merrill Lynch U.S. High Yield Constrained Index.3 Fund currently intends to limit common stocks to 10% of total assets.
Fidelity Capital & Income Fund (FAGIX) Combination of income and capital growth. Fund expects to invest majority of assets in debt securities and convertible securities, emphasizing lower quality debt securities—with the latitude to also invest in stocks, convertible securities, and preferred stocks.
Fidelity Global High Income Fund (FGHNX) High level of current income and potential capital growth. Fund seeks to tap into the income potential of fast‐growing countries and companies around the world by investing primarily in income‐producing debt securities of high yield, lower quality issuers based in the U.S., Europe, and Asia, as well as in issuers from emerging markets.
 
Learn more about Fidelity Global High Income Fund.

Things to keep in mind

  • Although bonds generally present less short-term risk and volatility than stocks, bonds do entail interest rate risk; that is, as interest rates rise, bond prices usually fall, and vice versa. Bonds also entail the risk of default, or the risk that an issuer will be unable to make income or principal payments. The bonds of below-investment-grade companies are more sensitive than investment-grade debt to the condition of the individual issuer, and thus involve less interest rate risk but greater risk of default or price changes due to potential changes in the credit quality of the issuer.
  • Additionally, bonds and short-term investments entail greater inflation risk than stocks-defined as the risk that the return of an investment will not keep up with increases in the prices of goods and services.
  • High-yield bond funds may also invest in securities that are in default, and securities of foreign as well as domestic issuers. Investments in foreign securities involve risks in addition to those of U.S. investments, such as increased political and economic risks as well as exposure to currency fluctuations.

Equity fund with objective of capital appreciation

Fidelity Leveraged Company Stock Fund normally invests at least 80% of assets in common stocks of leveraged companies – either 'growth' stocks, or 'value' stocks, or both. The fund may also invest in high-yield debt, and securities of foreign issuers.

Things to keep in mind

  • Leverage can magnify the impact of adverse issuer, political, regulator, market or economic developments on a company. A decrease in the credit quality of a highly leveraged company can lead to a significant decrease in the value of the company's securities.
  • In the event of bankruptcy, a company's creditors take precedence over the company's stockholders.
  • Although the companies the Fund invests in may be highly leveraged, the Fund itself does not use leverage as an investment strategy.

Note: Fidelity's leveraged company mutual funds are all open-end, daily-access funds, and do not borrow or use additional leverage in the management of the funds themselves.

Questions?

Find out more

  • Bond ratings

    Just as individuals have their own credit rating issued by credit bureaus, bond issuers generally are evaluated by their own set of ratings agencies to assess their creditworthiness.

    Learn more about how bond ratings work.

1. The Barclays Capital U.S. Aggregate Bond Index is an unmanaged market value-weighted performance benchmark of taxable investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of one year or more. The index is designed to represent the performance of the U.S. investment-grade fixed-rate bond market.
2. The BofA Merrill Lynch BB U.S. High Yield Constrained Index is an unmanaged market value-weighted index of all BB-rated domestic and Yankee high-yield bonds, including deferred interest bonds and payment-in-kind securities, and is not an investment vehicle. Issues included in the index have maturities of one year or more.
3. The BofA Merrill Lynch U.S. High Yield Constrained Index is an unmanaged market value-weighted index of all domestic and Yankee high-yield bonds, including deferred interest bonds and payment-in-kind securities. Issues included in the index have maturities of one year or more and have a credit rating lower than BBB-/Baa3, but are not in default.
You may not invest directly in an index.
Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.
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