Sunday, April 27, 2008

Financial stocks and bonds and FBALX

There is a lot of inconclusive debate these days over the price and value of financial stocks and bonds. Some people think they have "bottomed" and others believe that the mortgage mess and credit crunch and write-offs are doomed to get much worse. In truth, I do not know where these stocks and bonds sit today and what moves they are poised to make. I bring this up because I am thinking about starting to put some money in a balanced fund such as Fidelity Balanced Fund (FBALX), but I see that their largest sector investment is financials at 13.2%. Top 10 holdings include bonds from Ginnie Mae and Fannie Mae and stocks of JPMorgan Chase and Bank of America, but these holdings may have already shifted since they are as of march 31, 2008, almost a month ago. My personal feeling is that these stocks and bonds are likely to rebound, especially for the long term. Even if financials have not completely bottomed, they are currently at a sufficient discount after the weakness of the last nine months to reduce their risk substantially.

OTOH, the whole point of picking a balanced fund as my no-brainer investment is that I would not focus on this level of detail. Still, since I have not settled on this appraoch yet, a little bit of due diligence is still appropriate.

Personally, I have great confidence in Fannie Mae (and Freddie Mac) for the long run, and I think JPMorgan Chase is a solid company for the long run as well.

The yellow flag here is that financials did so poorly over the past nine months and helped to drag down FBALX, -7.29% year-to-date, -8.67 over six months, and -1.99 over one year, as of March 31, 2008. Actual YTD is -2.13% and it is -11.4% off its peak last October. OTOH, I am looking to buy after that adjustment occurred, so it feels as if I am getting a better deal, but there has also been a rebound since the big drop.

I would say that this yellow flag is not a deal-breaker for me or even for me to recommend this fund to others, but I do want to make sure that I have rock-solid confidence in this fund.

I see that Morningstar says "This mutual fund is a solid but not a distinctive option." I do not have a premium account, so I cannot read the full Morningstar analyst report, but the overall Morningstar rating is a full five stars.

I am thinking of setting up an investment in FBALX using the Fidelity Automatic Account Builder which would add a modest amount ($100 to $250) each month on an automated schedule.

-- Jack Krupansky

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