New fund to launch on 19 March, subject to FSA approval
An unconstrained portfolio of around 150 high conviction ideas, principally in BB and B rated credits
Fidelity Worldwide Investment is expanding its fixed income range with the launch of the Fidelity Global High Yield Fund on 19 March, subject to FSA approval.
The new fund offers investors an unconstrained portfolio of around 150 high conviction ideas primarily in BB and B rated credits, with the opportunity to include some CCC credits where they offer an attractive risk-reward proposition.
The fund will be co-managed by Peter Khan and Ian Spreadbury, supported by one of the largest credit and equity research teams on the buy-side. Lead manager Peter Khan has a wealth of experience in the high yield market, having begun his career as a fixed income trader with a specialism in high yield bonds. Ian Spreadbury, meanwhile, is one of the most experienced and highly regarded fixed income managers in the industry as manager of Fidelity MoneyBuilder Income Fund and Fidelity Strategic Bond Fund.
Why high yield?
While there is a perception that returns from high yield bonds are more volatile, the asset class has historically shown lower levels of volatility than equities - in fact, half the volatility over the last 25 years. Indeed, a negative total return has occurred in only 4 of the last 25 years*.
Looking back over the last 25 years, high yield bonds have delivered stronger risk-adjusted returns than the other major asset classes. The majority of the total return from high yield bonds - in fact, over 100% over the long term - has come from income. Today, the average sub-investment grade bond yields approximately 8%**.
Why now?
There are signs of deterioration in creditworthiness already showing, which has led to greater dispersion among issuers and sectors, but those companies with utility-like cash flows, healthy margins and a degree of pricing power should serve investors prioritising capital preservation well.
It is at times like these that high yield bonds can deliver very attractive returns. Historic evidence points to high yield assets delivering their strongest returns during economic downturns and in the early stages of the cyclical recovery.
Peter Khan, Co-Manager of Fidelity High Yield, comments: "Banks' limited appetite to roll over loans is likely to continue, encouraging more companies to seek funding in the bond market. The move away from loans into high yield bonds has been a major trend in the last three years and it is expected to continue, especially throughout Europe.
"Low interest rates should also continue to increase the investor base for higher yielding assets, which will help to absorb the new supply. And, assuming the economy avoids recession, it should foster strong demand for higher yielding products and good, but volatile, new-issuance conditions.
"By investing mainly in BB and B credits, the fund should participate strongly in up markets but also outperform during down markets."
Ben Waterhouse, Head of UK Retail Sales at Fidelity Worldwide Investment comments: "A Global High Yield fund is the natural extension of Fidelity's fixed income range. Peter Khan and Ian Spreadbury's combined experience in High Yield credit and risk management further strengthen the proposition at a time when the asset class looks attractive for investors.
"US issues account for about 85% of the high yield market and we are now seeing further growth in issuance from Europe and Asia. The importance of Fidelity's global research to Peter and Ian's process cannot be understated."
Fidelity Global High Yield Fund is a UK-domiciled OEIC and will sit in the IMA £ High Yield sector. The comparative index is the BoA ML Global High Yield Constrained Index (£ hedged), however, the fund will not be constrained in its regional allocation. It will be fully hedged to sterling to eliminate the effects of currency fluctuations. Derivatives and forward transactions may be used for investment purposes.
Minimum investment is £1000 A share class (AMC 1.25%) and £500,000 minimum for the Y share class (AMC 0.75%). Income distributions are monthly.
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