Selecting your bond portfolio in today’s environment
October 6, 2021
Selecting your bond portfolio in today's environment
Christine Thorpe
Michael Danaher Pete Stringfellow Thom Maciula
Institutional Portfolio Manager
Portfolio Manager National Brokerage Coach Regional Brokerage Consultant
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917 2021 FMR LLC, All rights reserved. 832020.4.0
What is on our agenda today?
Bond market context Investing in individual bonds Building and maintaining an individual bond portfolio Investing in a Separately Managed Account (SMA) Questions
2
2021 Bond market context
2021 Bond Market Recap
5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00%
Year-To-Date Total Returns of Major Bond Sub-asset Classes through August 2021
UST
US Agg
MBS Fix rate
IG Corp
EM
Muni
TIPS
Source: Bloomberg, August 2021
EM ? Bloomberg USD Emerging Markets Index, IG Corp ? Bloomberg U.S. Corporate Investment Grade Index, TIPS ? Bloomberg U.S. TIPS Index, Muni ? Bloomberg Municipal Bond Index, MBS ? Bloomberg U.S. Mortgage-Backed Securities (MBS) Index, US Agg ? Bloomberg U.S. Aggregate Index, UST ? Bloomberg U.S. Treasury Index (see index definitions page 25). 4 Past performance is no guarantee of future results.
When Stocks Fall, Bonds Have Tended to Stabilize Portfolio Returns
(1926?2021)
CALENDAR YEAR TOTAL RETURN (%)
Investment Grade Bonds S&P 500?
20
10
0
Total Return (%)
-10
-20
-30
-40
-50 1929 1930 1931 1932 1934 1937 1939 1940 1941 1946 1953 1957 1962 1966 1969 1973 1974 1977 1981 1990 2000 2001 2002 2008 2018
Source: Morningstar EnCorr, Fidelity Investments (AART).
Past performance is no guarantee of future results. It is not possible to invest directly in an index. All indices are unmanaged. Index performance is not meant to represent that of any Fidelity mutual fund. Diversification does not ensure a profit or guarantee against
loss. Bond returns represented by the performance of the Bloomberg U.S. Aggregate Bond Index from January 1976 and by a composite of the IA SBBI U.S. Intermediate-Term Government Bond Index (67%) and the IA SBBI U.S. Long-Term Corporate Bond Index (33%)
5
from January 1926 through December 1975. Stock returns represented by the performance of the S&P 500 Index.
Even When Rates Rise, Bond Returns Can Be Resilient
10-Year U.S. Treasury Yields
16% 14% 12% 10%
8% 6% 4% 2% 0%
Average Annualized IG Bond Returns
Period of Rising Rates (1941-1981)
3.4%
Period of Falling Rates (1982-2020)
7.7%
Yield %
1873 1876 1879 1882 1885 1888 1891 1894 1897 1900 1903 1906 1909 1912 1915 1918 1921 1924 1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
IG: Investment Grade. Past performance is no guarantee of future results. Asset class total returns are represented by indexes from Fidelity Investments, Morningstar, and Bloomberg. Fidelity Investments proprietary analysis of historical asset class performance,
which is not indicative of future performance. Sources: U.S. Treasury, Bloomberg Finance L.P., Fidelity Investments (AART) as of 12/31/2020. U.S. Treasury data reflects year-end closing daily yield from 1873 to present except for current year to date period as
noted. 6
Investing in individual bonds
Building & maintaining an individual bond portfolio
Why invest in individual bonds?
? Reduced risk (as compared to equities)
? Control (capital gains) ? Manage interest rate sensitivity ? Timing of maturities and income ? Flexibility ? Discipline vs market-timing ? Tax efficiency potential
A bond's cash flows
Invested Principal Coupons Return of Principal
8
Screenshot for illustrative purposes only
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