Fidelity International (Fidelity) has reduced the Ongoing Charges Figure (OCF) on the Fidelity Short Dated Corporate Bond Fund from 0.38% to 0.24%, making it the cheapest active short-dated fund in the IA Sterling Corporate Bond sector1.
The Fidelity Short Dated Corporate Bond Fund, managed by Sajiv Vaid and Kris Atkinson, is aimed at investors who desire a modestly higher yield and risk profile than cash and government bonds, but who consider a conventional corporate bond fund a step too far. The fund may also appeal to investors who are looking to reduce their credit and/or interest rate risk profile.
The fund aims to achieve both capital growth and income in a conservative manner, from a diversified portfolio at least 70% exposed to sterling-denominated (or hedged back to sterling) investment grade debt instruments, with an effective maturity of less than or equal to 5 years.
Look to Europe to see the opportunity for short-dated funds in the UK
Over the past nine years, growth of short-dated assets in Europe have been significant. 2012 saw the ECB base rate fall to 0%; the following five years saw net flows into the sector of EUR 23bn. 2016 was the first year ever the 10-year Bund yield turned negative; the following year saw net flows into the sector of EUR 10bn2. With the UK base rate now at 0.1% and parts of the yield curve in negative territory3, the opportunity for quality short-dated credits is an attractive alternative with the potential to achieve a healthier level of income, with only a marginal extension of credit risk.
John Clougherty, Head of Wholesale, Fidelity International, comments: “The low interest rate environment has intensified in the last year, with the risk of negative rates still very much on the table. Yet, household savings ratios are at all-time highs, leaving cash allocations eroding real wealth. We are seeing rising demand from clients who are looking for low volatility solutions to secure a modest level of income. By investing in the Fidelity Short Dated Corporate Bond Fund, conservative investors can enjoy low-cost access to our active credit selection capabilities.”
Sajiv Vaid, Portfolio Manager, Fidelity Short Dated Corporate Bond Fund, comments: “While valuations remain at the tighter end of its historical range, the attractiveness of the fund remains. With short rates underpinned for at least the next two years, the yield of the fund should ensure that it remains a good cash alternative, whilst also offering protection to investors relative to longer duration credit funds should the reflation theme gather steam. With the low interest rate environment persisting, we firmly believe that high-quality short-dated credit funds will increasingly be an important vehicle for investors, akin to the exponential growth we have seen in similar funds in Europe.”