Fidelity Intermediate Municipal Income Fund: Management Transition & Outlook

A changing of the guard took place recently at Fidelity Intermediate Municipal Income fund (FLTMX), a member of the Kiplinger 25, the collection of our favorite actively-managed mutual funds. After nearly 13 years as lead manager, Fidelity veteran Mark Sommer retired in 2018. “It has been a wonderful job. But life is short. I have other things I’d like to do,” said Sommer, who is in his late fifties.

Shareholders need not worry about an abrupt transition at Intermediate Muni Income. Kevin Ramundo, a comanager of the fund since mid 2010, is stepping up as lead manager. He’ll have help from Cormac Cullen, a comanager since 2016, and newly named comanager Elizah McLaughlin.

Overall, the past 12 months have been good for municipal bonds, which pay interest that is exempt from federal and sometimes state income taxes. One boost came from the new tax law, which helped to crimp the supply of muni bonds, putting upward pressure on prices. At the same time, new caps on state and local tax deductions made munis more attractive to investors who live in high-tax states.

Muni bonds have done well, on average, compared with other sectors of the bond market. The typical intermediate-term bond fund, for instance, gained 2.8% over the past 12 months; high-yield bond funds climbed 2.7%. Intermediate Muni Income returned 3.6%, beating the 3.3% gain of the typical medium-maturity muni fund.

Fidelity’s muni-bond pickers work in Merrimack, N.H., rather than in the firm’s Boston headquarters, and the structure of the space complements the collaborative culture of the team. Ramundo, Cullen and McLaughlin favor reasonably priced bonds with stable finances. Managing risk is a priority, and the team uses a proprietary tool to monitor the portfolio.

Over time, that has helped the fund hold up better in down markets. Though Intermediate Muni Income’s 10-year annualized return lags its peer group a smidge—an average of 0.4 percentage points per year—the fund has done a better job over the past decade of delivering more return for the risk it takes on than its peers or its benchmark, the Bloomberg Barclays Municipal index.