Top picks 2012: Fidelity income funds

Investors earning next to nothing in cash have many choices when looking for better returns.

By MSN Money Partner Jan 11, 2012 1:03PM

Image: Stock market (© Zurbar/age fotostock)This post is one in a series in which more than 50 newsletter advisers share their Top Picks for 2012.

 By Jack Bowers, Fidelity Monitor

What are the best income funds for 2012? Following are the Fidelity funds we think are well-positioned for the year, listed in increasing order of risk.

If you're earning next to nothing in cash, you can take a small step up the risk ladder to Fidelity Short-Term Bond (FSHBX). You probably won't keep ahead of inflation, but 1% is still better than nothing.

Fidelity GNMA (FGMNX) offers a higher yield with a limited amount of interest rate risk. While the securities it holds are not technically backed by the Federal government, in practice Congress is not likely to let the Government National Mortgage Association default. There's some risk that the Fed might unload these types of securities, but that day is probably a long way off.

Fidelity Corporate Bond (FCBFX) is a good bet for the best total return in the investment-grade universe. It's a little on the high side when it comes to interest rate risk, but we're not overly concerned about rising interest rates in the intermediate range of the yield curve. And Fidelity has greater potential to add value with security selection in this segment.

Fidelity Strategic Income (FSICX) is a good match for today's low interest rates. It takes on enough risk in the high-yield segment to earn a decent return, but not so much that it can be hurt badly by unfavorable events. Thanks to a strong team of managers, it's the bet for staying ahead of inflation without taking on a lot of credit risk.

For a blended approach with stocks and bonds, Fidelity Balanced (FBALX) offers a conservative 60/40 mix, with a diverse set of sectors on the stock side. On the bond side, it maintains a high-quality portfolio. Overall, this fund should have no trouble standing the test of time, which means it's a good bet for any investor that might hold a single fund for many years.

Fidelity Strategic Dividend and Income (FSDIX) takes on almost as much risk as a stock fund, but its wide range of dividend stocks and REIT investments give it better downside protection relative to equity-income and other dividend-oriented funds.

 

See all 50+ picks in our Top Picks Report 2012.

Steven Halpern's TheStockAdvisors.com​​ offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.

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