How to Invest Defensively

VIDEO: Fidelity's Sajiv Vaid discusses 25 years of bond investing and why he is investing defensively to avoid volatility

Holly Black 11 November, 2019 | 10:13AM
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Holly Black: Welcome to the Morningstar series, "Why Should I Invest With You?" I'm Holly Black. With me is Sajiv Vaid. He is manager of the Fidelity MoneyBuilder Income Fund. Hello.

Sajiv Vaid: Hi, Holly.

Black: So, tell us a bit about what the fund does.

Vaid: It's our flagship investment grade sterling bond fund that was launched 25 years ago. It is quite a unique product in its peer group in terms of it aims to deliver on giving investors a good level of income, modest volatility, and a low correlation to equities.

Black: So, modest volatility and a good income, I'm going to say that's probably not that easy at the moment.

Vaid: It's very tricky. The markets are very challenging. But what we have done in our portfolios over the last 12 to 18 months is have a more defensive approach, given some of the headwinds that we face just politically and economically as well.

Black: And we often hear fund managers say that they like to focus on the bottom-up side. But if you are trying to manage volatility, do you have to really pay attention to what's going on, on the macro side of things?

Vaid: Yeah, it is a combination. I mean, at Fidelity, it is very much a bottom-up process. We have 25-plus research analysts globally, just not in the UK, but Hong Kong, China and even Canada. And what we try to do is, marry those opportunities that we see on a micro level with our broader macro theme. So, our broader macro themes are one that we have some structural issues globally, which is the debt issue, demographics and income inequality. And I think that is one of the reasons why our fund is more biased towards the defensive end of things.

Black: So, how do you position yourself defensively at the moment? What does that mean in portfolio terms?

Vaid: Yes. We bias portfolio towards noncyclical sectors like regulated utilities, which is quite topical given in the UK the nationalisation risk. But we actually feel given our exposure is very much at the operating companies, we're actually well insulated from that noise. But also, we bias the portfolio towards asset-backed or secured bonds where we're secured on an asset stream or a physical property, for instance. And we think that's the best way to navigate against some of the challenges that we face.

Black: Do you worry about liquidity with those asset-backed and property type investments?

Vaid: Liquidity is obviously a topical issue and one that we've been cognisant for the last 10, 15 years since the financial crisis. And within our fund, we have typically had a good liquidity buffer that we define as government bonds, supranational bonds, and that has ranged between 10% to 20% over the last five years. So, regardless whether central banks are buying bonds, we maintain quite a healthy liquidity buffer within our portfolios.

Black: So, you said the fund has turned 25 this year. How in those 25 years do you think being a bond and an income investor has changed? Is it more difficult now?

Vaid: Well, firstly, there's a lot less income with 25 years on, and that's definitely a problem given the demographics that we face to deliver that income. I think generally the markets have developed – investment-grade markets have developed globally with new sectors as the economy changes. And that creates opportunities as well as challenges. And I think the most insightful thing I can think of in terms of that 25 years is having a good experienced and research-led operation and that's what we offer for our clients.

Black: Well, thank you so much for your time.

Vaid: Thank you.

Black: And thanks for joining us.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Black  is Senior Editor,