Sajiv Vaid (left) and Kris Atkinson, co-managers of Fidelity MoneyBuilder, give Stephen Little the lowdown on their fund – a Moneywise First 50 Fund for beginner investors
What is the Fidelity MoneyBuilder Income Fund?
The fund aims to achieve an attractive level of risk-adjusted return from a richly diversified portfolio primarily invested in Sterling-denominated bonds.
The strategy is designed to generate an attractive income and maintain a relatively low level of risk to other asset classes such as equities and property.
It is invested in corporations that have access to bond markets to fund their business. These include banks, such as Lloyds, firms in the retail sector such as Tesco or utility companies such as Severn Trent or Thames Water.
It is not just UK companies: we also have a lot of international companies that issue in Sterling as well. We have around 300 holdings and around 170 issuers. While this may seem a lot, we are confident in having that type of coverage, as our research team is one of the largest in the City.
What do you look for in companies?
Given the focus of the fund on downsize protection, the fund has a structural bias to non-cyclical sectors such as regulated utilities, consumer goods and secured bonds. A good example of this is housing associations in the Sterling bonds market. We look for sectors that should outperform in a downturn or in a recession, so we have very little exposure to retail or cyclical sectors such as commodities.
What are your top holdings?
As opposed to other retail funds in this space, the top holdings are really dominated by asset-backed securities, utilities or quasi-national European investment banks.
Our exposure to UK government bonds accounts for around 12% of the portfolio. Other top holdings include EDF, Thames Water and Aspire Defence Limited, a bond secured on cash flow from the Ministry of Defence for military barracks in the South West.
What have you recently bought and sold?
Mostly, we have been quite defensive. We have increased our government exposure on UK gilts and also participated in a few new deals in the property sector, such as the housing association, Peabody.
We have been very cautious on the banking or financial sectors because of the volatility and the high correlation to equities. Given the defensive nature of that, we have actually been paring down some of our exposure in that sector. We have reduced our exposure to Axa, Vodafone and EDF.
“We look at many sources for our exposure”
Investment jargon explained
Downside protection: Strategies that aim to reduce the impact of losses
Non-cyclical sectors: Stocks that do well during economic downturns
Concentrated position: When a share or stock represents a large percentage of the portfolio
A bottom-up perspective: Where investing focuses on a company’s performance rather than predictions of what will happen in the industry
How do you manage risk?
Our risk profile is quite asymmetric, but you can balance that by running quite a lot of diversification in the portfolio. So you are looking at multiple sources of income as opposed to concentrated bets.
An equity portfolio can have 20 to 30 stocks where one stock can fall 10% to 15% and then on the flip side another can go up 60%, so it can totally offset that. We don’t usually have that with corporate bonds. If you have a concentrated position and it goes wrong, it is very hard to recover from that. That is one of the reasons why we run diversified portfolios.
How do you identify companies to invest in?
Price and valuation are the key things when we make an assessment about whether we should be investing or not.
Our team of analysts is 30-strong and they spend a lot of time on a bottom-up perspective identifying opportunities.
Companies have to demonstrate a clear strategy regarding capital structure and we look at the cashflows to determine whether the balance sheet is sustainable. How it engages with stakeholders is also important.
Companies which have really ambitious growth strategies that are entirely dependent on raising debts in the capital markets are less sustainable than those that don’t rely on access to them in stressed environments.
What’s been your worst investment decision?
There has not been a particularly bad decision. We were exposed during the financial crisis but the fund’s defensive nature and its underweight exposure to financials really stood it in good stead.
In contrast to how equity investors look at things, we don’t just identify one opportunity to deliver a return - we look at multiple sources in our exposure.
If you had a top tip for a new investor, what would it be?
For me, investors have to understand why they want to be in an asset class.
If you want modest volatility and a low correlation to equities, you should consider exposure to fixed income as part of a diversified portfolio.
As we are late cycle, investors need to adjust their risk profiles as returns going forward are likely not just to be lower from fixed income but also across other asset classes.
The Fidelity MoneyBuilder Income Key Stats:
- Launched: September 1995
- Fund size: £3,641 million
- Ongoing charges (OCF): 0.56%
- Yield: 2.7%
Sources: Fidelity.co.uk and Fidelity MoneyBuilder Income September 2018 Factsheet
The managers behind the fund
Sajiv Vaid has managed Fidelity MoneyBuilder Income since 2015.
Sajiv was previously at Royal London Asset Management where he managed its flagship retail and institutional corporate funds.
He has also previously managed money at Gerrard Group and Fuji Investments, where he managed global fixed income portfolios.
Co-manager Kris Atkinson joined the fund this year. He started at Fidelity in 2000 as a credit analyst and has over 14 years of investment experience.
Ian Spreadbury, who co-runs the fund, is set to retire at the end of the year.
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Five-year discrete calendar performance of Fidelity MoneyBuilder Income Y
| Year | 2014 | 2015 | 2016 | 2017 | 2018 |
|---|---|---|---|---|---|
| Fidelity MoneyBuilder Income Y | 5.7% | 3.0% | 9% | 3.3% | -0.1% |
| Sector average | 5% | 2.2% | 8.8% | 4.3% | -0.2% |
Source: FE, 1 November 2018
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