Partner Insight: Sajiv Vaid and Kris Atkinson, managers of the £3.4bn Fidelity MoneyBuilder Income Fund, explain why they are taking a defensive approach to investing across the maturity spectrum
The flattening yield curve has meant shorter duration bonds are more in demand. Is there still a place for long-dated opportunities?
Sajiv Vaid: Short-dated bonds allow investors to sweat their cash while taking a relatively small amount of credit and duration risk, while longer duration bonds provide more income and lower correlation to equities.
Last year we saw a lot of inflows into short-dated bonds but in Q4 there were price falls which surprised a lot of people. That said, total returns for short-dated corporate bonds were attractive against a tough year across the asset classes and does show the value that this space can provide. In the Sterling credit market, the flattening curve, supported by the steady demand from buy-and-maintain money at the long-end, does mean investors currently give up relatively little spread to move inwards on the maturity spectrum.
KA: Within the MoneyBuilder Income portfolio it makes sense to hold both from a diversification perspective. We believe that investors are looking for three core attributes from their bond portfolios; income, low volatility and diversification away from equities, and one can achieve this outcome using a mix of short and long-dated bonds.
Where are you finding the best opportunities in 2019?
Kris Atkinson: We achieved returns of circa 2.5% in the first few weeks of the year. It is more or less impossible that we will see this run-rate continue as we move closer to the end of the credit cycle.
Therefore, we have positioned the Fidelity MoneyBuilder Income Fund to be more defensive and have invested in asset-backed sectors such as infrastructure and property.
We have also done a lot of work in the last 12 months in the regulated utilities space.
To maintain the defensive qualities of the fund and achieve a little bit more yield, we believe there is value in the insurance space with some good opportunity for capital appreciation on the back of the underperformance we saw across the sector in 2018.
Click here to read the full interview with Sajiv Vaid and Kris Atkinson in the exclusive Focus guide, and hear how Fidelity's fixed income team is positioned in a range of its funds.
