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
As inflation has fallen, the Bank of England has begun to cut interest rates, which could prove to be a tailwind for sterling corporate bonds.
In this Fund in Five, we talk to Ian Fishwick, lead manager of the Fidelity Sterling Corporate Bond Fund, to look at the portfolio from five angles and understand why now is a good time to invest in the asset class.
Presenting the Fidelity Sterling Corporate Bond Fund
The Fidelity Sterling Corporate Bond Fund invests primarily in sterling-denominated (or hedged back to sterling) investment grade corporate bonds.
“With more Bank of England interest rate cuts likely just around the corner, and the starting level of yield attractive, now might be a good time to start adding investment grade corporate bonds,” says Ian Fishwick, lead manager of the fund.
Fishwick adds the sterling corporate bond market is also globally diverse in its nature, with 50% of the index made-up of issuers who are not domiciled in the UK.
Overview
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*Fidelity international, as at 31 August 2024.
With an average credit rating of single-A* in the portfolio, Fishwick says he currently sees most value in higher quality corporate bonds, compared with lower-rated more risky assets.
“The excess return is perhaps not as high as, for example, a high yield asset class, but relative to the risk involved we think markets are better priced in high quality bonds at present,” he says.
The fund aims to deliver outperformance versus the ICE BofA Euro-Sterling Index though a diversified, multi-strategy approach.
“While the starting point will always be sterling corporate bonds, the fund can invest in bonds of all types,” says Fishwick. “So we can hold small amounts of high yield and government bonds where we think they will balance the portfolio.”
“From a credit, stock picking perspective, it’s basically completely bottom-up,” he says. “Essentially the way we construct the fund is to look for individual bonds which we think are cheaply priced relative to the market and build a portfolio from there.”
From an investment universe of over 1,300 holdings, the portfolio typically invests in 200-300 names. With typically about 30% of the portfolio’s weightings being different to the benchmark, Fishwick says this makes the investment process very active.
When comparing the fund with its peers, Fishwick says one of the main points of differentiation is its ability to find excess returns from a number of different sources.
“We are able to be active and away from the sterling corporate bond market directly, but still generate true returns which are appropriate for the asset class,” he says. “While the fund is quite active in terms of the difference from the market in terms of positions, it is structured to provide a return that is closely correlated with the sterling corporate bond market.”
The fund also benefits from Fidelity’s team of credit and equity research analysts, which has a 90% coverage of the sterling investment grade market.
“We have research resources that back up all the alpha seeking opportunities we take,” says Fishwick. “All of these resources are global in nature and organised to find investment opportunities inside the dollar or euro markets, or indeed all around the world.”
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Launch date
£245M
AUM
5.7%
Yield to maturity
(Index" 5.1%)*
Past performance is not a reliable indicator of future results. Returns may increase or decrease as a result of currency fluctuations.
*Fidelity International, as at 31 August 2024. The Index is ICE BofA Euro-Sterling Index.
The fund follows a global, team-based investment approach, led by a highly experienced portfolio management team. Fishwick manages the portfolio alongside Kris Atkinson and Shamir Gohil.
“Between the three of us we have almost eight decades of combined investment experience,” says Fishwick. “This means we have seen most of the cycles of the last 30 years.”
Fishwick joined Fidelity in 2007 and has 36 years of investment experience.
“The team that run this fund sit within the overall investment grade credit portfolio management team, and specifically the three off us work together on this fund and other sterling corporate bond funds,” Fishwick says. “As lead manager on this fund I generally take the final decision as to which ideas go into the portfolio, but we always share ideas which are appropriate to the asset class in general.”
Since taking over the fund on 1 August 2007, to 31 August 2024, the Fidelity Sterling Corporate Bond Fund has generated a cumulative return of 103.2%, versus the ICE BofA Euro-Sterling Index, which is up 78.6%.
“The fund has been consistently top quartile, relative to its peer group (IA Sterling Corporate Bond sector) over both shorter and longer time periods,” says Fishwick.
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He adds: “The key contributors to this performance have come from the fundamental credit research we do and the stock picking that follows on from it, but also the ideas that have come from our quant research team, our trading teams and from further afield within the Fidelity organisation, which we have been able to meld into the fund in a way that both adds to returns and to the quality of the portfolio.”
Source: Fidelity International, as at 31 August 2024. Comparative Index: ICE BofA Euro-Sterling Index. Performance shown is net of fees in GBP. Fund inception: 01 November 2000. Standard Ongoing charges of 0.43%.
