“We think that typically bond investors are looking for three things: low risk, a decent income, and a low correlation with equities,” says Tim Foster, co-manager of the Fidelity Strategic Bond Fund, part of the Fidelity Select 50.
With nearly 15 years of investment experience behind him, Foster has been steering the fund since 2017, joining industry stalwart and veteran Fidelity manager Ian Spreadbury who has been running money for over 30 years.
It’s no coincidence then that the fund’s objectives parallel those of the typical bond investor Foster describes. Low volatility, a reasonable income over the cycle and low correlation with equities are the main tenets of the fund, as the manager seeks to provide a one-stop shop for those looking for a fixed income solution.
But what about the ‘strategic’ label? Foster explains, “It really refers to that total return focus over the cycle. So we’re not so much aiming to outperform the benchmark as we are looking to deliver on our three objectives.”
Taking advantage of the label, the managers have considerable flexibility in the types of assets they can employ to meet their goals. A ‘go-anywhere’ fund, all bonds are open for selection. Foster explains, “We have a framework that we’ve set up for the fund and we call that the blend. It’s a mix of investment-grade corporate bonds, government bonds and high yield bonds. And what we have found is that, over the 13 years that we have been running the fund, that blend has delivered a good mix of the objectives. Essentially, it has delivered the same risk as investment-grade corporates, higher returns than investment-grade corporates, lower risk than high yield bonds and low correlations with equities.”
On top of the basic mix, the managers can vary the asset allocation within the fund, with a view to adding value further to the initial blend.
The flexibility afforded to the fund, thanks to the lack of benchmark constraints, highlights the strategy’s distinction from that of traditional bond funds. Moreover, Foster believes the specific goal of performing differently from equities means the fund can act as a diversifier for equity-heavy portfolios.
Visit the Fidelity Strategic Bond Fund factsheet and watch our interview with Tim Foster below.
For more Fund Focus articles, visit our Investment Ideas page.
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. Investors should note that the views expressed may no longer be current and may have already been acted upon. This fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates .This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. 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. Due to the greater possibility of default an investment in a corporate bond is generally less secure than an investment in government bonds. The funds do not offer any guarantee or protection with respect to return, capital preservation, stable net asset value or volatility. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.