Welcome to another edition of SOURCE, a publication that spotlights selected funds and their managers. This time, Fidelity presents its multi-asset capabilities and specifically its Multi Asset Allocator range. Find out more in our profile and Q&A with Henk-Jan Rikkerink, global head of solutions and multi asset, and portfolio managers Chris Forgan and Sudipta Gupta, plus supporting analysis from Citywire.
Fidelity International is known for its rigorous approach to research. Now, its multi-asset team is leveraging that heritage to stake its claim as the best client-driven multi-asset manager.
‘We’ve got some great strategies, some great capabilities, but we’re really trying to leverage that same DNA, that same research to become known as the best multi-asset team at meeting client needs,’ said Henk-Jan Rikkerink, its global head of solutions and multi asset.
‘It’s not about, “this is our product, please buy it”. We’re trying to put a huge amount of effort into what our client needs are, how can we tweak what we do to meet those needs and being second-to-none in adding that client focus to what we do.’
The team’s 2025 vision is to have one of the strongest suites of research capabilities around, along with cementing its position as a client-driven multi-asset manager. Therefore, combining off-the-shelf products that meet client needs alongside the ability to tailor investments to meet the needs of those who want something different, is central to their proposition. ‘I would hope over the coming years, if you ask competitors and clients about us, that those are the two things they would say really differentiate us,’ Rikkerink said.
The team is developing in a number of areas but the thematic, sustainability and private market propositions within its multi-asset range are recent and continuing areas of focus.
‘In terms of outcome areas, where we feel there’s a client need and where we’re investing new effort, is the multi-thematic space. Thematic investing, historically, has been about growth equity investing. That gives you growth portfolios, but frankly, it also gives you highly volatile portfolios because different themes can be in or out of favour.
‘There’s a lot of value to be added to clients by combining themes and portfolio construction in a sensible manner to still get that exposure to growth but to do that in a balanced manner.’
Fidelity launched new multi-thematic strategies in the institutional space in Asia last year. ‘I’d expect to see that happening more and more in the retail space too,’ Rikkerink said.
In the UK last summer, it launched a sustainable multi-asset fund range consisting of three Oeics.
‘I expect over time there to be more new strategies, but also for existing strategies to go on a journey of sustainability. Clients want more sustainable building blocks in existing strategies,’ he added.
Fidelity has also homed in on the private market space with a view to adding private building blocks to its client solutions.
‘Those would be very much new strategies, probably in the DC [defined contribution pension] space in the first instance – really going after new capabilities with different vehicles that are appropriate for those types of asset classes.
‘Adding private markets with public markets allows us to meet further client needs,’ he said.
The belief that markets are semi-efficient underpins Fidelity’s investment philosophy. The ability to capture inefficiencies at an asset class and underlying investment level creates the opportunity for ‘alpha stacking’ and delivering the best outcomes for clients.
For the 80-strong multi-asset team, heavy investment in research is at the heart of producing desired client outcomes. That starts with an understanding of the client’s needs and extends to devising the right asset allocation and then to selecting the right building blocks, whether internal or external funds.
‘We always start with the client need we are solving,’ said Rikkerink. ‘Are we solving a client need that is looking for downside protection or are we solving a client need that’s looking for growth – maybe growth within certain bands of risk tolerance – or are we solving a client need that is looking for income?
‘We then work backwards through our investment process to come up with the right core strategic asset allocation, the right building blocks and then combine those in the right way to get that desired outcome at the desired price point.’
Around four years ago, the team revamped its Fidelity Multi Asset Allocator range following feedback from intermediaries.
‘That was very much client-led,’ said portfolio manager Chris Forgan. ‘Clients were saying they wanted something where costs were minimally impacting the outcomes and where there was no tactical asset allocation.’
The Allocator range is a low-cost, risk-rated range of five funds focused on delivering diversified exposure to global financial markets and implemented through passive building blocks.
‘The focus here is the market rate of return and thinking about long-term time horizons and how different asset classes perform in relation to each other over the medium to long term while ensuring that costs are kept to a minimum,’ Forgan said.
It is one of four multi-asset fund ranges that cater for different client needs in the UK.
The Allocator range is rooted in strategic asset allocation and populated with passives, paving the way for very low fund costs of 20 basis points, but the Fidelity Multi Asset Open fund range is more flexible and dynamic. Both active and passive strategies reflect tactical tilts designed to harness returns or shore up defences in line with changing market dynamics, so costs are understandably higher.
‘Again, it’s a suite of five funds which all operate through that particular prism at different points of the risk curve and it’s all mapped back to client outcomes and client needs,’ said Forgan.
The Fidelity Sustainable Multi Asset fund range offers risk-controlled solutions for conservative, balanced and growth investors for a compelling ongoing charge of 50 basis points.
‘Broadly at Fidelity, there has been a strong move in terms of sustainability and bringing that into all aspects of our research process and this particular fund range looks to capture and allow that laser focus on sustainability to drive returns,’ Forgan said.
Lastly, the Fidelity Multi Asset Income range aims to deliver a sustainable level of income from a range of asset classes.
‘In an income-starved world, a multi-asset approach to income generation has real advantages. We can blend different asset classes together to generate a very attractive level of income, naturally generated but with a focus on capital preservation and looking to manage the volatility that comes with investing in the stock market.
‘Each of the four fund ranges offers something different for the UK client and I think we now have a suite of products that really offers that differentiation to whatever the client may be looking for.’
Find out more about the Fidelity Multi Asset Allocator range in our Q&A with lead portfolio manager Chris Forgan and assistant portfolio manager Sudipta Gupta
CF: They are designed for clients looking to access financial markets in a consistent, liquid and diversified manner with a focus on long-term returns. The range is designed to look through short-term volatility and noise and focus on the key long-term relationships of specific asset classes. This is available through a cost-effective solution that we believe delivers returns to clients in a manner they can understand whether that be through the asset classes they’re exposed to or the instruments used to gain that exposure.
CF: Ultimately, it is strategic asset allocation that enables us to achieve what the allocator funds are designed for. The funds offer broad-based and diversified exposure to global financial markets, implemented through low-cost index tracker funds and exchange-traded funds [ETFs]. Our rigorous selection approach focuses on identifying the optimal passive instruments from across the whole of the market.
CF: The funds aim to provide long-term capital growth through global exposure to two asset types: growth assets and defensive assets. Growth assets generate long-term returns for investors and consist of global developed market equities, global real estate investment trusts or real estate equities, emerging market equities and global smaller company equities. Defensive assets, on the other hand, aim to protect the portfolio during risk-off periods. These consist of global government bonds and global corporate bonds. Therefore, what you have is six asset classes that provide exposure to a broad and diversified set of regions, countries and sectors. Each fund typically holds 10 to 15 passive instruments to achieve the desired exposures.
CF: This comes back to our strategic asset allocation and our focus on exposing clients to those asset classes that offer persistent long-term value-add characteristics or risk premia as we call it. For instance, we incorporate global smaller companies as this asset class tends to equate to a higher expected rate of return over time, driven by higher growth potential. We exclude certain asset classes where we see a low level of persistent risk premia. One of those would be commodities, which tends to be a super cyclical asset class, where supply and demand uncertainties can substantially impact outcomes. Therefore, we see that as an asset class that’s more suited to tactical asset allocation. High yield is another asset class that we’ve chosen not to incorporate.
SG: ETFs really work best where the underlying asset is very liquid and high yield is a less liquid asset class. High yield ETFs do not track the standard high yield benchmark. They tend to design a customised, more liquid benchmark, which structurally underperforms the standard benchmark. High yield ETFs are also quite expensive. One of the largest is around 50 basis points. We have access to active managers who are trying to outperform the standard high yield benchmark at a similar level of fees, so it doesn’t make sense for us to use an ETF in the space.
CF: It comes back to one of the key tenets of what the allocator funds are all about – diversified exposure to global financial markets. We didn’t want to dilute this by incorporating a bias that could impact the outcomes for clients. By going global we’re able to evolve with global markets and capture changes within the opportunity set over time.
CF: We take an open architecture approach. We’re simply focused on identifying those instruments that we see as the most efficient.
SG: I have about 15 years’ experience doing passive fund research and have built a huge network and good relationships across the passive and ETF ecosystem. That is immensely beneficial. We use our position in the industry to get the best possible terms for our clients. We also happen to be one of the first to be contacted if there is anything new happening in the marketplace.
CF: The portfolio management team has me as lead PM, co-PM Sarah Jane Cawthray – both of us have been in the markets for more than 20 years – and Sudipta with his focus on the passive universe. Beyond that, the range draws on different capabilities and strengths across Fidelity. We utilise our quant team to help with the identification of the right blends of different asset classes. Our implementation team works in conjunction with dealers across fixed income and equities. They feed back with real-time information on how the pricing of different strategies in the marketplace potentially impacts outcomes.
CF: Cost erosion of return is something that we take very seriously because costs meaningfully impact outcomes. When fees come down, we want to pass those savings onto clients.
CF: Asset flow has been strong, particularly in recent years. Last year was our strongest on record. Pleasingly, we’ve seen growth across all five funds. The global approach coupled with our open architecture implementation are factors our clients are drawn to. In terms of the future, first and foremost we aim to continue to deliver good outcomes for our clients and ultimately, we want to continue to see growth in assets.
CF: The Fidelity Multi Asset Allocator funds have clearly defined risk/return profiles. Mapped to client outcomes, they set reasonable expectations of their behaviour over time. They provide diversified exposure to financial markets through a consistent blend of growth and defensive assets. They have no home bias and are whole-of-market. They draw upon the research capabilities of the Fidelity multi-asset team in areas such as global macro, quantitative analysis and strategy selection. Clients get exposure to all of this for a fixed price of 20 basis points.
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This information is for investment professionals only and should not be relied upon by private investors. The value of investments go down as well as up and you may not get back the amount invested. Fidelity Multi Asset funds use 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. Changes in currency exchange rates may affect the value of investments in overseas market. Investments in emerging markets can be more volatile than other more developed markets. The value of bonds is influenced by movements in interest rates and bond yields. If interest rates rise, bonds may fall in value, and vice versa. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuer's ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between different government issuers as well as between different corporate issuers. 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. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document (Key Information Document for Investment Trusts), current annual and semi-annual reports free of charge on request by calling 0800 368 1732. Issued by FIL Pensions Management and Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0222/370342/SSO/NA
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Source: Fidelity International, Morningstar, 31 January 2022. Performance is for the W Acc share class and excludes initial charge. Basis: mid-mid with income reinvested, in GBP, net of fees. For Fidelity Multi Asset Allocator Defensive, launch date is 10 October 2011 and IA Sector is IA Mixed Investment 0–35% shares. For Fidelity Multi Asset Allocator Strategic, launch date is 10 October 2011 and IA Sector is IA Mixed Investment 20–60% shares. For Fidelity Multi Asset Allocator Growth, launch date is 10 October 2011 and IA Sector is IA Mixed Investment 40–85% shares. For Fidelity Multi Asset Allocator Adventurous, launch date is 5 December 2012 and IA Sector is IA Flexible Investment. For Fidelity Allocator World, launch date is 5 February 2013 and IA Sector is IA Global. The funds were repurposed in March 2018. The fund is managed without reference to a benchmark.