Fidelity Moneybuilder Income: December 2021 fund update

• Co-managers Sajiv Vaid and Kristian Atkinson have over four decades combined investment experience
• The managers have performed well over the long run, delivering strong returns to investors
• Vaid and Atkinson benefit from the support of Fidelity's extensive in-house research team
• The fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Fidelity Moneybuilder Income fund aims to provide a relatively steady income and a small amount of growth, without taking excessive risks, by investing in bonds. It could help diversify an investment portfolio focused on shares, provide a form of income, or be used as a way to help limit volatility during tougher times for stock and bond markets.

Manager

The fund is co-managed by experienced duo Sajiv Vaid and Kristian Atkinson. Vaid joined Fidelity from Royal London Asset management in 2015 and has over 27 years of experience managing fixed income funds. Atkinson joined Fidelity in 2000 and has over 20 years investment experience. We like the fund managers' relatively conservative investment approach.

Vaid and Atkinson benefit from Fidelity's extensive in-house research team to help them put together the portfolio. The duo manage other bond funds too, but they’re supported by a well-resourced fixed income team at Fidelity, so we feel they can comfortably handle their other responsibilities.

Process

Most bond managers analyse the bigger economic picture and Vaid and Atkinson are no different. But we also think a strength of the team is their skill at analysing bond-issuing companies. It helps them determine which are the most attractively priced bonds and should be included in the fund. The managers can invest overseas but you should expect the fund to retain a strong UK bias.

Vaid and Atkinson aim to provide a decent level of income, offer some stability in turbulent times, and perform differently to funds focused on shares. The portfolio includes collateralised debt, where borrowers have to post security for a loan in the same way you might use a house as collateral for a mortgage. The investor has something to rely on if the borrower doesn't pay money owed to bond holders. This differentiates the fund from some other bond funds. The managers also make use of their ability to invest in lower-risk government bonds and can invest in derivatives, which add risk. The fund is well diversified, so no single area should have a significant negative effect on performance, the reverse is also true.

The managers like asset backed bonds which often benefit from being secured on assets or income, adding extra shelter to the payments an investor can expect to receive. There’s around 10% of the portfolio invested here. They also think there’s value on offer in some of the Covid affected sectors. In recent months Vaid and Atkinson have increased the credit quality of the portfolio by adding to A and AA rated bonds and reducing BBB rated bonds. In the current low interest rate environment they believe that investment grade (bonds with a credit rating above BBB) corporate bonds may be the ‘sweet spot’ in the fixed income market, delivering modest income while keeping risks in check. The managers also invest in high yield and unrated bonds though. These areas have the potential to offer higher yields to compensate investors for their higher risk, around 9.5% of the fund is invested here.

Culture

Fidelity is privately owned. This independence should mean it can focus on the long-term interests of investors rather than short-term shareholder demands. The managers are incentivised based on the longer-term performance of the fund. We think this is a positive as it aligns their interests with those of their investors. They do well when their investors do well.

The team also considers environmental, social and governance (ESG) factors when researching individual companies and bonds. They think these factors have the potential to affect the long term value of the investment and believe high standards of corporate responsibility make good business sense. They also think they can improve risk adjusted returns and achieve more positive sustainable outcomes by incorporating sustainable factors into their investment process. Where companies don’t meet the managers’ expectations around ESG, they’ll engage to help them improve, rather than excluding them from consideration altogether. Over the last 12 months they’ve engaged with 26 different bond issuers on a range of ESG related topics including climate change and biodiversity.

Cost

The fund has an annual ongoing charge of 0.56%, but we’ve secured HL clients an ongoing saving of 0.20%. This means you’ll pay a net ongoing charge of 0.36%. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

Vaid has an impressive track record of managing corporate bond funds over a long period of time that stretches back to 2002. We think he's performed well, delivering strong returns for fixed income investors over the long term. It’s been a little tougher since he took over management of this fund in August 2015 though, he’s delivered returns of 30.28%* to investors, marginally behind the gain of 31.14% for the average sterling corporate bond fund.

We think the mangers are relatively cautious investors, so ordinarily the fund is managed conservatively with a focus on companies less likely to default on their debts. This means it could lag the benchmark during good times, but provide some shelter when markets fall.

Over the last year our analysis suggests that the managers have added value compared to its peer group through their bond selection. The fund’s investments in asset backed bonds, utilities and treasuries have been among the biggest contributors to performance over the period. Past performance is not a guide to the future.

The fund currently yields 2.7% though yields are not a reliable indicator of future income and income isn’t guaranteed. While there aren’t any guarantees how the fund will perform in future, we think the prospects are good with the experienced Vaid and Atkinson at the helm.

Past performance is not a guide to the future. Source: *Lipper IM to 30/11/2021, with income reinvested.

Find out more about Fidelity MoneyBuilder Income, including charges

Fidelity MoneyBuilder Income Key investor information