Fidelity Short Duration High Income Fund (FSAHX) aims to provide investors with a way to shorten the duration of their allocation to high yield debt through a fund that normally maintains an average duration of three years or less. The fund's objective is to seek a high level of current income, and the potential for capital appreciation, by investing primarily in short-duration, income-producing debt securities of lower credit quality. These securities are primarily bonds of domestic and foreign issuers, complemented by other types of investments such as floating rate bank loans (also known as leveraged loans), that are issued by non-investment grade or "high yield" companies.
Key features of this fund
- Primarily invests in lower-quality debt securities (rated BB and below), as well as preferred stocks and convertible securities
- Will also invest in floating rate bank debt and investment grade debt securities
- Invests primarily in companies in troubled or uncertain financial condition, or with high levels of debt (leverage)
- Maintains an average duration of three years or less
- May not be appropriate for investing horizons of less than two years
- Is not a cash equivalent or obligation of a bank
Duration is a measure of a bond's price sensitivity to a change in its yield. Typically, if a bond fund has a 3-year average duration, and the yield on each of the bonds held by the fund rises 1%, the fund's value is likely to fall about 3%. The Short Duration High Income fund expects to manage its duration by monitoring a composite benchmark whose neutral weight focuses primarily on high yield bonds that mature within 5 ½ years and have a duration of less than 3 years. The benchmark's neutral weight to these bonds is 80%, with a neutral weight of 10% each for floating rate bank loans (leveraged loans), and short-duration investment-grade debt. The fund expects to take advantage of market opportunities by tactically shifting its mix of securities versus the neutral weight.
Things to keep in mind
The fund primarily invests in lower-quality debt securities (rated BB and below) and thus, is riskier than its investment-grade counterparts. Furthermore, the fund invests in companies in troubled or uncertain financial condition. While this may result in higher yields, there is an increased risk of default or price fluctuations due to changes in the credit quality of the issuer. In addition, investments in foreign securities, especially those in emerging markets, involve additional risk such as increased political and economic risks as well as exposure to currency fluctuations. Each of the fund's investment categories may experience periods of volatile returns, and it is possible for all investment categories to decline at the same time.