Fidelity MoneyBuilder Income - a more discerning approach

• Ian Spreadbury and Sajiv Vaid, the fund’s managers, have a bias to sectors and companies not reliant on a strong economy to perform well
• They believe corporate bonds still have a part to play for income-seeking investors
• The fund currently yields 2.7% - variable and not an indicator of future income

Our View

We like the aim to produce a relatively steady income stream without taking excessive risks. To do this Ian Spreadbury and Sajiv Vaid combine their extensive experience with the research of Fidelity’s well-resourced team of analysts. It results in a portfolio spread across a range of sectors and companies, to ensure no one area can dominate the fund and derail performance.

It’s an approach that has fared well over the long term, including successfully navigating some tough times for bond markets, although please remember there is no guarantee past success will be repeated.

The fund continues to deserve a place on the Wealth 150+ list of our favourite funds.

Managers' outlook

With the US in the process of raising interest rates and the UK widely expected to follow next month, the environment for bonds could be very different over the next few years when compared with the past decade.

This said, it’s important to remember where we’re starting from. Interest rates have been near zero for a long time. Ian Spreadbury and Sajiv Vaid don’t expect them to rise significantly. While better economic growth and rising inflation could lead rates to rise in the shorter term, they believe huge debt levels globally, and aging populations, will constrain growth and interest rates over the longer term.

In this environment they expect investors’ search for income to continue, with corporate bonds looking attractive. Even so, they believe a discerning approach is necessary. The fund therefore has a bias to companies and sectors not reliant on strong economic growth to perform well, such as utilities. They have taken a more cautious view of economically-sensitive sectors, such as banks and financial companies.

Performance review

The fund has performed broadly in line with the IA £ Corporate Bond peer group over the past year, and delivered a modest positive return of 1.6%*. Past performance is not a guide to the future.

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2018.

The managers’ willingness to use their flexibility to invest in euro and dollar-denominated bonds, as well as a small amount in higher-risk high-yield bonds, has been beneficial to performance. They also have the flexibility to use derivatives, which can add risk.

Investments in asset-backed bonds (these are secured against assets owned by the company, often property), the insurance sector, and utilities companies also performed well. Bond issues by Tesco and EDF, the electricity company, were among those to perform well.

Over the long-term the managers’ relatively prudent approach has paid off, in our view. A focus on bonds issued by good companies with strong balance sheets and cash flow profiles is likely to mean the fund lags behind a strong market when more exciting areas are in vogue, but it could hold up a little better during a setback. In the long run we believe investors will be well served and the fund has the potential deliver better returns than its peer group.

Please read the Key Features/ Key Investor Information in addition to the information above.

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