Fidelity MoneyBuilder Income – January 2021 fund update

Joseph Hill | Mon 25 January 2021

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• Co-managers Sajiv Vaid and Kristian Atkinson have over 40 years combined investment experience
• The managers have performed well over the long run, delivering strong returns
• Vaid and Atkinson benefit from the support of Fidelity's extensive in-house research team
• The fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The fund aims to provide a relatively steady income and a small amount of growth, without taking excessive risks. It could help diversify a portfolio focused on shares, or be used as a way to help limit volatility during tougher times for stock and bond markets.

Manager

The fund is co-managed by experienced duo Sajiv Vaid and Kristian Atkinson. Vaid joined Fidelity from Royal London Asset management in 2015 and has over 22 years of experience managing fixed income funds. Meanwhile Atkinson joined Fidelity in 2000 and has over 19 years investment experience. We like the fund managers' relatively conservative approach.

Vaid and Atkinson benefit from Fidelity's extensive in-house research team to help them put together the portfolio. The duo manage other bond funds too, but they’re supported by a well-resourced fixed income team at Fidelity, so we feel they can comfortably handle their other responsibilities.

Process

Most bond managers analyse the bigger economic picture and Sajiv Vaid and Kristian Atkinson are no different. But we also think a particular strength of the team is their skill at analysing bond-issuing companies. It helps them determine which are the most attractively priced and should be included in the fund. The managers can invest overseas but you should expect the fund to retain a strong UK bias.

Vaid and Atkinson aim to provide a decent level of income, offer some stability in turbulent times, and perform differently to funds focused on shares. The portfolio includes collateralised debt, where borrowers have to post security for a loan in the same way you might use a house as collateral for a mortgage. The investor has something to rely on if the borrower doesn't pay money owed to bond holders. This differentiates the fund from some other bond funds. The managers also make use of their ability to invest in lower-risk government bonds and can invest in derivatives, which add risk. The fund is well diversified, so no single area should have a significant negative effect on performance.

The managers think economic growth will rebound in 2021, although even at the end of the year we’re still likely to be behind where we were before the pandemic struck. They are finding a good number of opportunities though. One area they’re attracted to is asset backed bonds which often benefit from being secured on assets or income, adding extra security to the payments you expect to receive. They also think there’s value on offer in some of the Covid affected sectors such as leisure, travel and infrastructure. Here the managers are focusing on companies that have raised cash via equity raises, debt issuance, or both, and so have enough liquidity to see them through any further lockdowns or downturns.

Culture

Fidelity is privately owned. This independence should mean it can focus on the long-term interests of investors rather than short-term shareholder demands. The managers are incentivised based on the longer-term performance of the fund. We think this is a positive as it aligns their interests with those of their investors. They do well when their investors do well.

The team also consider environmental, social and governance (ESG) factors when researching individual companies and bonds. They think these factors have the potential to affect the long term value of the investment and believe high standards of corporate responsibility make good business sense. They also think they can improve risk adjusted returns and achieve more positive sustainable outcomes by incorporating sustainable factors into their investment process. Where companies don’t meet the managers’ expectations around ESG, they’ll engage to help them improve, rather than excluding them from consideration altogether. Over the last 12 months they’ve engaged with 37 different bond issuers on topics such as executive pay and alignment with the climate goals set out in the Paris agreement.

Cost

The fund has an annual ongoing charge of 0.56%, but we’ve secured HL clients an ongoing saving of 0.2%. This means you’ll pay a net ongoing charge of 0.36%. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

Sajiv Vaid has an impressive track record of managing corporate bond funds over a long period of time that stretches back to 2002. We think he's performed very well, delivering strong returns for fixed income investors.

Vaid and Atkinson were wary heading into 2020 due to stretched valuations in the market and concerns about Brexit so positioned the fund defensively as a result. This meant increased exposure to more defensive sectors like utilities and avoiding the bonds of cyclical companies whose fortunes are closely tied to the health of the UK economy. The mangers are relatively cautious investors anyway, so ordinarily the fund is managed conservatively with more of the fund invested in companies less likely to default on their debts. This means it could lag the benchmark during good times, but provide some shelter when markets fall.

Over the course of last year the managers added value through their selection of which bonds to buy for the portfolio. Their positions in some asset backed bonds didn’t perform as well as some other bonds though which held back returns. The managers remain confident that these type of bonds will perform well over the coming year.

Past performance is not a guide to the future. Source: Lipper IM to 31/12/2020.

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