Morningstar Magazine - April/May 2018 - 51

A Moderate Take on High Income
This fund's advantages add up to a Silver rating.

BEST IDEAS: M ANAGER

Eric Jacobson

Fidelity High Income SPHIX

This article is adapted from the fund's Morningstar Global Fund Report dated
Feb. 14, 2018.

Stats 02/28/2018

Fidelity High Income SPHIX boasts a below-average price, a comparatively
moderate approach, and a long-tenured manager with a good record, meriting
a Morningstar Analyst Rating of Silver.

Morningstar Analyst Rating
*

Morningstar Category
High Yield Bond

Expense Ratio
0.72%

Fee Level
Below Average

5-Yr Annlzd Return
4.85%

5-Yr % Rank in Cat
27

Morningstar Pillars 02/28/2018

Manager Fred Hoff inherited an aggressive, concentrated portfolio riddled
with misfires at the start of 2002 and molded it into a more moderate offering.
In his search for the mispriced debt of firms ready to improve their credit
profiles, he focuses more on B rated bonds than his typical competitor or
commonly used benchmarks. He will buy lower-quality names when he thinks
their fundamentals and valuations warrant but doesn't hold large equity stakes.
And while he will own bank loans and raise cash as a safety measure, he
doesn't want those bets to be so large as to overshadow security selection.
Security selection is the cornerstone of Hoff's strategy. He keeps a close eye
on risk among sector- and quality-level exposures, but they're mostly
an outcrop of security-level bets. So, for example, the fund's light exposure to
automakers in 2007-which was a help that year-was driven by research
on the individual companies. So, too, was a decision to tread carefully among
gaming names in 2008. Hoff was particularly careful about energy- and
coal-related names a few years ago, noting a surge in issuance from unseasoned, commodity-price-sensitive firms with negative free cash flows. That
caution helped the fund avoid the worst of the late-2014 and 2015 high-yield
sell-off, as energy and coal names were battered. However, in 2017, fundamental research got Hoff comfortable with a handful of exploration and
production names, despite his usual distaste for the sector. His allocations
there got a helpful boost from their oil-price-driven resurgence, while
Dynegy DYN and Navios Maritime Holdings NM each benefited from issuerspecific stories.
That 2017 success, on the heels of bounce-back wins in 2016, has
further helped the fund's record, after several middling calendar years. Its
15-year returns are top-third among unique funds in the high-yield
Morningstar Category. K
Eric Jacobson is a senior analyst, fixed-income strategies, with Morningstar
Research Services.

Process
∞ Positive

Performance
∞ Positive

People
∞ Positive

Parent
∞ Positive

Price
∞ Positive

Growth of 10K 02/28/2018

$14K
ICE BofAML US High Yield

12
11.65
11.60
10

Fidelity High Income

8
03/2015

03/2016

03/2017

Portfolio Stats 10/31/2017

Morningstar Ratings 02/28/2018

Period

Mstar
Return

5.4

3-Yr

Above Avg Above Avg QQQQ

85.2

92.3

5-Yr

Above Avg Above Avg QQQQ

Other %

3.6

1.6

10-Yr

Above Avg Average

30-Day SEC Yield %

5.5

4.5

Overall Rating

Fund

Cat Avg

Cash %

11.1

Bond %

Mstar
Risk

Mstar
Rating

QQQQ
QQQQ

Top 5 Sectors 10/31/2017

Sectors

■ Fund

❙ Category Average

Corporate Bond

80.10

Bank Loan
Convertible
Preferred
Agency MBS

83.51

0.42 5.53
1.31 2.42
0.13 0.76
0.00 0.36

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Table of Contents for the Digital Edition of Morningstar Magazine - April/May 2018