IMPORTANT INFORMATION
Asset class
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Process
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Differentiator
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Team
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Track record
FOR PROFESSIONAL INVESTORS ONLY
On 30 September 2023, Kris Atkinson took over the lead manager role of the Fidelity Short Dated Corporate Bond Fund from Sajiv Vaid who retired from fund management.
In this fund in five we look at the fund from five angles and Atkinson explains the rationale for holding short dated credit.
Presenting the Fidelity Short Dated Corporate Bond Fund
After a tough 2022 for all bond holders, Atkinson says a combination of falling inflation and a peak in interest rate hikes is boosting the appealing for short dated corporate bonds.
* Excluding formal firm-wide and fund-level exclusions
As a result, having fallen alongside equities in 2022, Atkinson believes fixed income will provide its traditional diversification benefits as we move forward into the coming years.
“The yields you can get on a Short Dated Corporate Bond fund are now comparable to what you could during the global financial crisis (GFC) of 2008-09,” says Atkinson.
“Recessionary risks are high and there is little room for error in developed market high yield credit spreads, so we therefore prefer investment grade bonds,” he adds.
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Adopting the investment philosophy that credit is a semi-efficient market, the fund adopts a highly active, simple, and disciplined investment approach which aims to deliver an excess yield over the benchmark index by locking in attractive yields and holding them through to maturity.
Focused on high quality short dated corporate bonds, the average credit in the portfolio is currently BBB.
The fund buys active bonds with five-and-a-half years left to mature in the knowledge they are about to enter the 1-5 year index and therefore benefit from forced passive selling.
“Our investment process is quite simple,” says Atkinson. “We take advantage of a large team of credit analysts that are based in London and across the world in Toronto and Asia, who provide us with a pool of ideas of high-quality credit where we have strong conviction that we will get repaid capital and interest.”
High-quality short-dated credit
An active and simple excess yield approach
Exploits the passive community
Atkinson says what makes the Fidelity Short Dated Corporate Bond fund different to its peers is the intensive credit work that is undertaken by the team.
“Some funds will have a shorter benchmark or take a more aggressive focus but where we differentiate ourselves is by focusing on those credits where there is a story behind them,” he says. “This approach can not only generate additional yield, but we can also exploit misplacing in the market created by forced sellers.”
The fund does not hold bonds with equity like features, while the high yield bond exposure is limited to 10% of the portfolio – with the current weighting at 5.15%.
While not badged a sustainable fund, Atkinson says at Fidelity ESG factors are integrated into both its credit and equity research process which are reflected in the credits the fund owns. As a result, he notes the average ESG quality is higher than the benchmark.
6.3%
Yield to maturity*
2.4YRS
Effective duration
£527M
Fund size
Past performance is not a reliable indicator of future results.
Source: Fidelity International. Fidelity Short Dated Corporate Bond Fund yield as of 31 August 2024. ICE BofA Indices used. Sterling Investment Grade (1-5Y) = EVL0 Index; Sterling Cash (12m) = LBPY Index. The Yield to Maturity (also known as the Redemption Yield) is the anticipated return on a bond / fund expressed as an annual rate based on price/ market value as at date shown, coupon rate and time to maturity. The redemption yield is gross of any charges and tax.
On 30 September 2023, Atkinson assumed lead-portfolio manager responsibility for the fund, replacing Sajiv Vaid who retired.
Having begun his career at Fidelity as an investment analyst in 2000, Atkinson has been co-manager of the fund (and the Fidelity Sustainable MoneyBuilder Income and Fidelity Extra Income funds) with Vaid for the last five years.
Co-managing the fund alongside Atkinson is Shamil Gohil, who joined Fidelity at the start of 2023 from HSBC and has 18 years of investment experience.
“We share responsibility on the fund equally, discussing every credit decision together to arrive at a consensus conclusion,” says Atkinson.
The managers also draw upon Fidelity’s 89* strong fixed income team, while Atkinson says the fund also utilizes the equity research team to better understand risks within certain credits.
*Source: Fidelity International, 2024. Data unaudited. Investment Professionals figure includes CIO, Head of Asian Fixed Income, Portfolio Managers, Traders – which includes two Divisional Managers, Credit Research – which includes three Divisional Managers and Quantitative Research Analysts - which includes one Divisional Manager. All team numbers exclude Investment Graduates.
Launched in November 2016, the yield on the Fidelity Short Dated Corporate Bond Fund is currently 6.3% at the end of December 2023.
From a capital returns perspective, the fund is outperforming its index (after fees) and is first quartile relative to its peers in the IA Sterling Corporate Bond sector over three and five years.
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“The key drivers of performance have been credit selection,” says Atkinson. “There have been no complex duration or derivative strategies that have boosted performance temporarily, it has just been a simple approach of buying credits, harvesting the premium and locking them into the fund.”
Past performance is not a reliable indicator of future results. Returns may increase or decrease as a result of currency fluctuations. Source: Fidelity International, Morningstar, 31 August 2024. Performance reflects Fidelity Short Dated Corporate Bond Fund W Income Shares, basis Bid-Bid with income reinvested in GBP. Comparative Index: ICE BofA 1-5 Year Eurosterling Index.
5-year performance
This is for investment professionals only and should not be relied upon by private investors. The value of investments and the income from them can go down as well as up so you may get back less than you invest. The value of investments in overseas markets may be affected by changes in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. Rising interest rates may cause the value of your investment to fall. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between government issuers as well as between different corporate issuers. Sub-investment grade bonds are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value of the fund investing in them. They can also use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Issued by FIL Pensions Management and Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority authorised. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM1023/382376/SSO/1223
