Flexibility Helps This Top Fidelity Bond Fund Thrive

Bond returns have taken it on the chin in recent months, thanks to the Iran war, higher-than-expected inflation and uncertainty about the timing and direction of the Federal Reserve's next interest rate moves.

The Bloomberg U.S. Aggregate Bond Index, a benchmark of high-quality debt, has been in retreat since February. Its one-year return through July is 2.7%. By contrast, the Fidelity Strategic Income Fund (FADMX) — a member of the Kiplinger 25, our favorite no-load mutual funds — holds a mix of high- and low-quality bonds and has returned 6.0%.

The lead managers behind Strategic Income, Adam Kramer (PDF), Celso Munoz (PDF) and Ford O'Neil, aim to provide a high level of income and potential capital appreciation by divvying up the portfolio into a target mix of roughly 45% in high-yield bonds (including floating-rate loans), 30% in U.S. government and investment-grade bonds, 15% in emerging-markets debt, and 10% in international developed-market IOUs.

A profitable mix for this Fidelity bond fund

How the mix of sectors comes together is the managers' secret sauce. Depending on where they see opportunity, they'll shift the allocations to those bond sectors up or down.

They trimmed the fund's exposure in U.S. government bonds to build up stakes in high-yield securities during the tariff tantrum in April and May 2025, for instance. And when interest rates fell in October 2025, they pared back their exposures to high-yield debt (but still maintained an overweight). The lead managers make the big-picture calls; bond-sector specialists do the security selection.

As of mid-2026, the fund held nearly 50% of assets in high-yield debt and tipped moderately toward emerging-markets debt (nearly 16%). Relative to its benchmark weights, the fund is light on U.S. government IOUs (26%) and foreign developed-market bonds (8%).

Strategic Income's emphasis on high-yield and emerging-markets debt has contributed to its performance, as those bond sectors have each returned better than 6% over the past 12 months, outpacing other sectors. The fund yields 4.5%.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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