Is Fidelity Capital & Income Becoming Too Risky?

Since they peaked in February of this year, high yield bond spreads have come back down to earth returning some normalcy to the junk bond market. But significant risks in the high yield space still exist. Moody's and Fitch both recently increased their estimates for corporate defaults while S&P noted that the average corporate credit rating is at 15 year lows. The collapse of the Third Avenue Focused Credit Fund (MUTF:TFCIX) is a shining example of what can go wrong when investing in the speculative credit markets. While that fund was far riskier than most high yield bond funds, it shows why it's important to know what's under the hood of your high yield bond fund.


The Fidelity Capital & Income Fund (MUTF:FAGIX) is one of the highest rated high yield bond funds in the marketplace but carries with it its own share of risk. While investors will no doubt be attracted by the fund's historical returns, this fund is not a pure play on the high yield market as it has roughly 20% of its total portfolio assets invested in equities such as Skyworks Solutions (NASDAQ:SWKS), Allergen (NYSE:AGN), Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB). Like Third Avenue, Capital & Income also dabbles in distressed and defaulted securities.

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