fixed income investing in individual bonds & separately ... year . more than 5,000 in ......

1

Investing in Individual Bonds & Separately Managed Accounts

Fixed Income

January 31, 2018

Fidelity Brokerage Services LLC, Member NYSE, SIPC 900 Salem Street, Smithfield, RI 02917 832020.1.0

2

Agenda

• Bond market context • Why invest in individual bonds? • Building and maintaining an individual bond portfolio • Investing in Separately Managed Accounts • Questions

3

2017 Bond Market Context

4

2017 Bond Market Recap

0%

2%

4%

6%

8%

10%

Hig

h Yi

eld

Cor

pora

te

Inve

stm

ent G

rade

Cor

pora

te

Mun

icip

al

Trea

sury

Infla

tion

Pro

tect

ed

Mor

tgag

e-Ba

cked

Trea

sury

Age

ncy

Ret

urn

(%)

2017 Calendar Year Performance (Returns for Select Key Indices)

• Federal Reserve raised short term interest rates three times in 2017

• Despite short-term interest rates rising, long term interest rates declined

• Longer-term bonds benefited from global demand as the yields on U.S. bonds remained attractive

• This led to positive returns for most sectors

• Corporates bonds were the strongest performer

• Corporates benefited from optimism surrounding tax reform and an improvement in issuer financial strength

• Municipal bonds also had a strong year due to favorable supply and demand dynamics

Performance Drivers

Source: Fidelity Investments and Bloomberg Barclays as of 12/31/17. Past performance is no guarantee of future results. Please see Important Additional Information section for additional information.

5

Myth: Everyone Knows the Future Direction of Rates

0%

1%

2%

3%

4%

5%

6%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Forecast rates Actual rates

Rolling 5-quarter Median Forecasts of 10-year Treasury Note Yields in the Philadelphia Fed’s Quarterly Survey of Professional Forecasters: 2000–2016

Source: Federal Reserve Bank of Philadelphia as of 12/31/16.

6

Why Invest in Individual Bonds?

7

Why invest in individual bonds?

• Reduced risk (as compared to equities)

• Control (capital gains) • Manage interest rate sensitivity • Timing of maturities and income • Flexibility • Discipline vs market-timing • Tax efficiency potential

INVESTED PRINCIPAL

COUPONS

RETURN OF PRINCIPAL

A BOND’S CASH-FLOWS

For illustrative purposes only

8

Investing in Individual Bonds

9

Building a self-managed portfolio of individual bonds

• Beyond Yield - Criteria • Bond Search (& Save) • Analyzing Results • Researching the Issuer • Bond Ladders • Ownership Experience

A REPEATABLE PROCESS

News & Research > Fixed Income, Bonds & CDs > Understanding Bonds tab > Fixed Income Insights

10

• Screen for bond and CD offerings • Search across multiple product types:

– US Treasuries – Municipal Bonds – Agency Bonds – Corporate Investment Grade Bonds – Corporate High Yield Bonds – Brokered Certificate of Deposit

• Save search criteria for future efficiency • Secondary market and new issue bonds

available for most bond types

Search for Bonds: Using multiple criteria

News & Research > Fixed Income, Bonds & CDs > Find Bonds and CDs tab > Bonds

Screenshot for illustrative purposes only

11

• Narrow the inventory to reflect your criteria choices

• Evaluate Bid & Ask prices • “Depth of Book” provides insight into

liquidity and encourages competition between dealers

• Compare live prices with recently-traded prices using TRACE and MSRB data

• Access the Bond Details page using the Bond Description link for more information

Results Table: Line-by-line comparison of bonds


News & Research > Fixed Income, Bonds & CDs > Find Bonds and CDs tab > Run a Secondary Corporate Bond Search

12

• Understand “structural” aspects of a

bond – Coupon – Yield – Call risk – Credit ratings

• View Material Events (Munis) • View Issuer Events (Corporates) • Link to 3rd-party research • Broader market data and news

Bond Research: Understand the structure and recent events

From the Bond Search Results page, click a bond’s Description field to see Details.

Screenshots for illustrative purposes only

News & Research > Fixed Income, Bonds & CDs > Research & Markets tab

13

• Intuitive design allows you to seamlessly build, edit, & purchase a bond ladder

• View estimated income and principal information in a chart format

• Manage interest rate risk and reinvestment risk

• Ability to export the ladder to the Fixed Income Analysis tool for income analysis before you invest

Bond Ladder Tool: Build a portfolio of bonds with staggered maturity dates

News & Research > Fixed Income, Bonds & CDs > Bond Tools tab > Bond Ladder Tool > Build a Bond Ladder


14

• Be reminded when a bond or CD in your portfolio is about to mature

– Email – Fidelity.com’s Message Center

• Stay informed of certain issuer or material events such as bond calls

• Receive updates on credit ratings status: Upgrades, downgrades and credit watch

• Take advantage of brief opportunities to purchase new issues

News & Research > Fixed Income, Bonds & CDs > Bond Tools tab > Fixed Income Alerts > Fixed Income Holding or Fixed Income New Issues & Secondary Offerings


Bond Ownership Experience: Subscribe to alerts on your bond holdings and/or availability of new issues

15

• Efficiently analyze of your bond & bond fund positions held at Fidelity

• Integrate outside holdings for holistic analysis

• Evaluate the timing of cash flows • Identify sources of call risk &

concentration risk • Model the interest rate sensitivity of

your fixed income portfolio

Fixed Income Analysis tool: Monitor your bond portfolio

News & Research > Fixed Income, Bonds & CDs > Bond Tools tab > Fixed Income Analysis Tool


16

~40K Unique Bonds Offered ~60K Total Offerings

Fidelity’s bond inventory aggregation platform

17

A Fidelity Process: “Transparent Pricing”

OFFERINGS SEEN BY TRADERS

PRICES SEEN BY CUSTOMERS IN

OFFERINGS

PRICES SEEN BY CUSTOMERS IN TRADE TICKET

B Markup Broker Process: “Undisclosed Pricing”

Inventory (and prices) from dealers


Disclosed Mark-up

($1/Bond)


$1

Bond

1 2 3




Undisclosed Mark-up

($?/Bond)

Undisclosed Mark-up

($?/Bond)

$?

Bond

Fidelity’s Cost Transparency

18

Investing in a Separately Managed Account (SMA)

Investing in a Separately Managed Account (SMA)

19

What are the Benefits of an SMA? • Direct ownership of individual securities • Transparency of positions and trading activity • Ability to customize • Potential for tax advantages • Professional management

What are the benefits of professional management? • Credit research: Independent analysis using a mosaic of sources • Quantitative research: Leverage mathematical models to analyze complex investments • Trading: Focused on efficient execution and opportunistic trades • Portfolio management: Comprehensive risk management and portfolio construction.

What is an SMA? • A private portfolio of individual securities (bonds, stocks, etc.) owned directly by high net worth clients

Fidelity’s Global Footprint Offers Important Investment Insights

20

Data as of 9/30/17 Figures include Fidelity Management & Research Company and Fidelity Institutional Asset Management Investment Professionals.

Leveraging the work of more than 800 Investment Professionals around the globe at Fidelity

310 Equity

136 Fixed Income 50

Equity 38 Equity

12 11 187

Asset Allocation

Asset Allocation

Fixed Income

Equity

2

42 High Income

High Income

NORTH AMERICA EUROPE JAPAN PACIFIC EX-JAPAN

17

Dedicated Team Embedded in Broader Fixed Income Division

21

* Certain strategies are managed by Fidelity Institutional Asset ManagementSM (FIAM) affiliates. Resources depicted reflect the combined resources of FIAM and Fidelity Investments as of 9/30/17. Personal Bond Management assets reflected as of 12/31/17. Research Professionals include both analysts and associates. Assets under management include sub-portfolios.

PORTFOLIO MANAGEMENT—ASSETS $1,003.7B

INVESTMENT GRADE FIXED INCOME INVESTMENT PROFESSIONALS

Personal Bond Mgt

Core/Core Plus Credit/LDI Global Govt/

Mortgage Municipal High Income Index Limited

Term Money Market*

$1.2B $95.5B $22.1B $21.7B $37.8B $34.2B $106.0B $47.9B $73.8B $563.5B

Division Management

Fundamental and Quantitative Research Trading Portfolio Management Investment Other

8 77 28 31 9

HIGH INCOME INVESTMENT PROFESSIONALS

Division Management

Fundamental and Quantitative Research Trading Portfolio Management Investment Other

2 26 5 11 -

OVER 200 FIXED INCOME INVESTMENT SUPPORT PROFESSIONALS

Legal and Compliance Product Management & Analysis Investment Services Team Technology

Investment Success Requires In-Depth Research

Treasury 35%

Agency 5% Money

Markets 2% Municipal

9%

Corporate Debt 22%

Mortgage Related

23%

Asset-Backed 4%

22

Size of research team allows for broad coverage and analyst specialization

Over 400 research professionals* around the globe

More than 13,000 company contacts per year

More than 5,000 in-house visits per year

More than 35,000 proprietary research notes per year

U.S. Bond Market Outstanding Q3 2017

* Resources depicted reflect the combined research resources of FIAM and Fidelity Investments as of 9/30/17

Source: SIFMA

Fidelity® Personal Bond Management Investment Process

23

PUTTING FIDELITY’S POWERFUL RESOURCES TO WORK

INVESTMENT UNIVERSE

A broad universe of investment grade fixed income securities across different sectors and maturities

Sourcing both primary and secondary market opportunities

CREDIT ANALYSIS

Review issuer strength and assign credit rating

Understand sector dynamics

Eliminate issuers not fundamentally suitable

CLIENT PORTFOLIO

Fidelity® Intermediate Municipal and Fidelity® Core mandates

Approximately 25-50 holdings *

* Number of portfolio holdings dependent on overall portfolio size. Source: Fidelity Investments.

QUANTITATIVE ANALYSIS

Employ proprietary systems to model security characteristics

Evaluate risk sensitivities across multiple dimensions (security, sector, portfolio level)

PORTFOLIO CONSTRUCTION

Credit selection driven by relative value

Diversify at sector and issuer level

Consistently monitor portfolio and rebalance

TRADING

Identify trading opportunities and assess relative value using Trader’s Notebook

Leverage market presence to ensure efficient execution and liquidity

Fidelity® Personal Bond Management – SMA Offering

Screenshot for illustrative purposes only 24

→ To learn more, contact your Fidelity Representative

** The advisory fee does not cover charges resulting from trades effected with or through broker-dealers other than affiliates of Strategic Advisers, mark-ups or mark-downs by broker-dealers, transfer taxes, exchange fees, regulatory fees, odd-lot differentials, handling charges, electronic fund and wire transfer fees, or any other charges imposed by law or otherwise applicable to your account. You will also incur underlying expenses associated with the investment vehicles selected.

Summary

25

26

Summary: Investing in Bonds and Bond SMAs at Fidelity

------------------------------

• Potential Income stream • Direct ownership • Transparency • Customization • Tax efficiency potential

• Leverage insights of >800

professionals* • Access to entire investment

grade bond market • Institutional trading platform

• Tools & analytics • Large, aggregated

inventory • Price advantage vs markup

brokers

Owning individual bonds

Bond SMA Self-select

* Figures include Fidelity Management & Research Company and Fidelity Institutional Asset Management Investment Professionals, September 30, 2017

Important Additional Information

Market Indices

* Index returns on slide 4 represented by: Agency – Bloomberg Barclays U.S. Agency Index; Credit – Bloomberg Barclays U.S. Credit Bond Index; High Yield – BofA ML U.S. High Yield Index; MBS (Mortgage-Backed Securities) – Bloomberg Barclays MBS Index; Municipal – Bloomberg Barclays Municipal Bond Index; TIPS (Treasury Inflation-Protected Securities) – Bloomberg Barclays U.S. TIPS Index; Treasuries – Bloomberg Barclays U.S. Treasury Index. The index performance includes the reinvestment of dividends and interest income. It is not possible to invest directly in an index. All market indices are unmanaged. Index performance is not meant to represent that of any Fidelity mutual fund. Securities indices are not subject to fees and expenses typically associated with managed accounts or investment funds.

Bloomberg Barclays Municipal Bond Index is a market value-weighted index of investment-grade municipal bonds with maturities of one year or more.

Bloomberg Barclays U.S. Agency Bond Index is a market value-weighted index of U.S. Agency government and investment-grade corporate fixed-rate debt issues.

Bloomberg Barclays U.S. Credit Bond Index is a market value-weighted index of investment-grade corporate fixed-rate debt issues with maturities of one year or more.

Bloomberg Barclays U.S. Corporate High Yield Bond Index is a market value-weighted index that covers the universe of dollar-denominated, fixed-rate, non-investment grade debt.

Bloomberg Barclays U.S. MBS Index is a market value-weighted index of fixed-rate securities that represent interests in pools of mortgage loans, including balloon mortgages, with original terms of 15 and 30 years that are issued by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corp. (FHLMC). Bloomberg Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index (Series-L) is a market value-weighted index that measures the performance of inflation-protected securities issued by the U.S. Treasury. Bloomberg Barclays U.S. Treasury Bond Index is a market value-weighted index of public obligations of the U.S. Treasury with maturities of one year or more.

27

Important Additional Information (Cont’d)

28

Minimum concessions of $19.95 apply if traded with a Fidelity representative. For U.S. Treasury purchases traded with a Fidelity representative, a flat charge of $19.95 per trade applies. A $250 maximum applies to all trades, reduced to a $50 maximum for bonds maturing in one year or less. Fixed income trading requires a Fidelity brokerage account with a minimum opening balance of $2,500. Rates are for U.S. dollar–denominated bonds; additional fees and minimums apply for non-dollar bond trades. Other conditions may apply; see Fidelity.com/commissions for details. Please note that concessions may affect the total cost of the transaction and the total, or "effective," yield of your investment. The offering broker, which may be our affiliate National Financial Services LLC, may separately mark up or mark down the price of the security and may realize a trading profit or loss on the transaction. Any screenshots, charts, or company trading symbols mentioned, are provided for illustrative purposes only and should not be considered an offer to sell, a solicitation of an offer to buy, or a recommendation for the security. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. The Fixed Income Analysis tool, and Bond Ladder tool are designed for educational purposes only and you should not rely on them as the primary basis for your investment, financial or tax planning decisions. A bond ladder, depending on the types and amount of securities within it, may not ensure adequate diversification of your investment portfolio. While diversification does not ensure a profit or guarantee against loss, a lack of diversification may result in heightened volatility of your portfolio value. You must perform your own evaluation as to whether a bond ladder and the securities held within it are consistent with your investment objectives, risk tolerance, and financial circumstances. To learn more about diversification and its effects on your portfolio, contact a representative. Fidelity® Strategic Disciplines is a service of Strategic Advisers, Inc., a registered investment adviser and a Fidelity Investments company. Fidelity® Strategic Disciplines includes the Fidelity® Intermediate Municipal Strategy and the Fidelity® Core Bond Strategy. These discretionary money management services are provided for a fee. Brokerage services are provided by Fidelity Brokerage Services LLC. Custody and other services are provided by National Financial Services LLC. Both are Fidelity Investments companies and members of NYSE and SIPC. © 2018 FMR LLC. All rights reserved. Fidelity Brokerage Services, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917. 832020.1.0

Questions

29

Fidelity’s Resources – for self-directed bond investors

• Inventory Aggregation • Pricing • New Issues • Tools • Service

Supporting Your Process


News & Research > Fixed Income, Bonds & CDs > Bond Tools tab and Service & Solutions tab

30

fixed income investing in individual bonds & separately ... year . more than 5,000 in ......

Documents