Fidelity New Markets Income Fund (FNMIX) has $5.5 billion in assets under management and pays an outsized 5.2% dividend. The fund has a strategy of investing 80% of its assets in debt securities of emerging markets including sovereign bonds, agency bonds, corporate and treasury bonds. Examples of emerging market countries include Venezuela, Mexico, Turkey, Qatar, Brazil, etc. If you had invested $10,000 in this fund on July 11th, 2002, your portfolio would be worth $33,085.59 as of July 11th, 2012. This means an average annualized rate of return of 12.8% which is superb. None of the mutual funds featured on this site, Best Dividend Mutual funds have beaten this performance, if there is one, let us know.
The top 10 holdings of the fund are shown below. We see Sovereign debt securities such as Turkey paying 11.875% coupon that matures in 2030. We also see Brazil Govt bonds paying 12.25% coupon maturing in 2030. These high coupon payments provide for the 5.2% outsized interest yield that this fund pays to unit holders. There are a total of 222 bonds held in the portfolio and the top 10 make up 15% of the entire portfolio.
This fund is well diversified across 19 different countries, thus if one country goes in political turmoil, the fund will not be materially affected because it is diversified. We see the US holds the top spot at 12.29% of the portfolio while Venezuela and Mexico take up almost 20%. Brazil, Turkey and Russia make up another 20% of the portfolio divided fairly equally.
The fund is diversified in its bond holdings as well, with 63.4% held in sovereign bonds, hedged in US Dollars. 19% of the portfolio is held in agency bonds. Agency bonds are issued by government-sponsored agencies and are backed by the government. As an example, Fannie Mae and Freddie Mac bonds are sponsored by the US Government. US Treasury bonds make up 3.68% of the portfolio and this fund is underweight US treasuries because of their relatively low yields compared to the rest of the world.
The expense ratio of 0.86% is quite low compared to industry average and for a fund of this size and performance. Portfolio turnover is 132% which means 132 bonds are traded in/out of the fund each year. This number is very high compared to industry average. Minimum investment in the fund is $2,500. Morning Star classifies this fund as above average return with low risk. However, we think this fund has very high returns with average risk, due to the possibility of sovereign government defaults on their bonds, especially with the financial crisis in countries like Greece, Spain, Italy, Portugal and the remainder of Europe.
Below is a diagram that shows credit quality of each of the Fidelity New Market Income fund’s bond holdings. Majority of the bonds are rated BBB because they are in sovereign countries that can be affected by political and government failure risks. 17.32% of the bonds are rated BB while 12.07% are rated B. Only 9.5% of the fund’s bond holdings are rated AA and A. The fund holds 6.71% of its assets in Cash to take advantage of market buying opportunities.
Go here to view this fund’s fact sheet, prospectus, performance & risk, summary, objectives, transaction data, etc.
