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Fidelity Index World: June 2022 fund update

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • The fund is run by a highly experienced team of passive fund specialists
  • We think this is an excellent option for accessing broad global markets
  • The fund is a simple, low-cost way to track the MSCI World Index
  • This fund features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

TheFidelity Index World fund invests across a broad range of developed countries like the US, Japan and European countries including the UK. It offers exposure to large and medium sized companies such as household names Apple, Microsoft and Amazon.

An index tracker fund is one of the simplest ways to invest, and we think this fund could be a great, low-cost starting point for a portfolio aiming to deliver long term growth. It could be a good addition to a more UK-focused portfolio, or a simple way to form the equity foundation of a portfolio.

Manager

Fidelity launched this fund in December 2012 and appointed Geode Capital Management – a specialist provider of index trackers – to manage the investments. Geode began in 2001 as a division of US-based Fidelity Investments and became an independent, private company in 2003.

It’s become a large company, with $975bn of assets under management and has a well-resourced team of experienced investment professionals. Portfolio managers have on average over two decades of experience. Given their team-based approach, there are no named managers on any passive funds.

While Geode manages the investments, Fidelity International Limited is ultimately responsible for the fund. They handle the sales, marketing, compliance and regulations functions. While not the usual arrangement for passive providers, we think Geode’s scale and passive investment specialism combined with Fidelity’s operations and commercial expertise makes for a good partnership.

Process

The fund aims to replicate the MSCI world index by buying all the 1500+ constituent companies and in the same proportion. This is known as full replication. Sometimes the smallest positions aren’t included for efficiency and cost-savings. The biggest sectors of the portfolio are currently information technology, financials and health care.

US stock markets dwarf others around the world and tend to form a large part of global portfolios. The Fidelity Index World fund is no different, with American companies accounting for around two-thirds of the fund. Therefore, performance is heavily tied to the US markets.

The fund has tracking error targets, which measure how closely it's tracking its benchmark. These are monitored by Geode and Fidelity on a daily and monthly basis to ensure the fund is closely following the index. They also try to make up for the things that detract from performance such as dealing commissions, taxes and the cost of running the fund.

Culture

Active management remains at the core of Fidelity’s investment philosophy, but they recognise investors want to include passive strategies as part of their portfolios. They’re a large asset manager and now provide a range of passive products in the UK, and globally, tracking popular indices.

The size of the company and the funds themselves means they have the scale to run them efficiently and cost-effectively. As a privately-owned business, Fidelity is able to maintain a long-term view without the pressures of short-term shareholder demands, which we think is a positive for any investment business.

Certain senior staff and investment professionals participate in an Equity Ownership Plan that aligns participants with Geode’s long-term goals and enables them to share in the success of the company. By doing this, their interests are further aligned with the investors in the fund.

ESG Integration

Fidelity has committed to improving its approach to analysing Environmental, social and governance factors (ESG) in recent years. They’ve developed a structured engagement program which allows them to be more systematic in their engagement on environmental and social issues, become involved in collaborative engagement initiatives and introduced ESG data into fund managers’ quarterly reviews.

The firm has also bolstered its dedicated ESG team, which writes regular ESG reports on companies held by Fidelity fund managers.

Given Geode acts as the shareholder on behalf of Fidelity, they engage in direct dialogue with companies they invest in, to improve the company’s governance and environmental outlook. We view this active ownership as a positive approach to addressing stewardship issues. That said, the Geode stewardship team comprises only four individuals which is smaller than other fund groups in the market.

Fidelity Index World is a passive fund designed to track an index, so it doesn’t integrate ESG analysis or exclude companies deemed to be sin stocks, like those involved in tobacco or weapons.

Cost

The fund has an ongoing annual fund charge of 0.12%. We believe this is good value when compared with other global passive funds in this sector. Our platform charge of up to 0.45% per annum also applies.

Performance

Since launch in December 2012, the Fidelity Index World fund’s tracked its benchmark closely. As is typical of index tracker funds, it’s fallen behind the benchmark over the long term because of the costs involved. However, this difference has been reduced due to the strategies used by the team.

Performance figures can sometimes be distorted by the time a fund is valued versus its benchmark. For example, most UK funds, such as Fidelity Index World, value at midday whereas its benchmarks are priced at market close. This can lead to what appears to be a greater tracking error. It’s not an indicator of poor management though, just a statistical mismatch.

To counteract this issue, Fidelity produce data that has been hypothetically re-priced using company share prices that make up the index at market close. These can be found on their factsheet and can give a more accurate display of the fund’s tracking error.

So far this year, ‘value’ companies have performed better – these are businesses that have often been shunned by investors and whose shares may look ‘cheap’ compared with the companies’ prospects.

More broadly, Russia’s invasion of Ukraine and China’s attempts to maintain a zero-covid policy have extended supply chain issues. This continues to drive higher inflation and companies will likely endure higher wage costs, as workers demand increased pay to support higher prices. This may slow profits for companies.

Given Geode's size, experience and expertise running index tracker funds, we expect the fund to continue to track the benchmark well in future, though there are no guarantees.

Annual percentage growth
May 17 -
May 18
May 18 -
May 19
May 19 -
May 20
May 20 -
May 21
May 21 -
May 22
Fidelity Index World 8.23% 5.05% 9.14% 22.47% 8.00%
MSCI World TR GBP 8.84% 5.86% 9.46% 22.87% 7.85%

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2022.

Find out more about Fidelity Index World, including charges

Fidelity Index World Key investor information

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.

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