Michael Maka says, “With the rise in rates that started in 2022, certain bond structures were more interest-rate sensitive and went down in price significantly more than others. So we’ve been buying some of those deep discount securities that were hit hard as rates rose,” The Fidelity Intermediate Municipal Income Fund (FLTMX) is known for its steady approach to municipal bond investing, as highlighted by Morningstar. Led by portfolio manager Michael Maka, the fund focuses on a research-driven strategy with a goal of long-term total return. Maka, who has a lot of experience in the municipal bond market, aims to build a portfolio that performs well over time without trying to predict market movements. Municipal bonds are especially attractive to wealthy investors because of their tax advantages, and FLTMX is benefiting from the current high-interest-rate environment. The fund has a 30-day SEC yield of 3.28% and a tax-equivalent yield of 5.54%.
FLTMX targets the middle of the yield curve, which is gaining interest as investors expect possible Federal Reserve rate cuts. With a duration of 4.89 years, the fund is set up to react to interest rate changes. The team, which includes traders, research analysts, and portfolio managers, works together to choose assets based on factors like yield curve positioning, credit quality, and bond structure. The fund has a large allocation to revenue bonds, making up 63% of its portfolio, which often have more varied credit ratings compared to general obligation bonds. Despite this focus, Maka remains positive about general obligation bonds, which make up 37% of the fund’s assets.
In building its portfolio, FLTMX emphasizes diversification and risk management by making many small investments rather than a few large ones. This strategy aims for steady, incremental gains rather than high-risk, high-reward plays. The fund has also taken advantage of opportunities created by interest rate movements, buying discounted bonds that were heavily impacted by rising rates. Maka finds sectors like health care and transportation particularly appealing because of their essential services and professional management, which often reduces political interference. By targeting these sectors, which offer a range of issuers and credit qualities, the fund seeks to find valuable investments and achieve strong, steady returns, even in challenging municipal markets.
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