Overhaul boosts tired performance

21 June 2010 | By Tomas Hirst

The Fidelity multi-manager team has undergone an extensive process of reorganisation. A year on Eugene Philalithis, the manager of the Fidelity MultiManager Income fund, says the fund has also evolved.

“2008 proved a tough time for credit strategies,” he says. “We were picking managers who were outperforming their benchmarks and peer group but we had the wrong asset allocation for that kind of market.”

The problem, says Philalithis, was that the multi-manager range had a relatively static asset allocation model that the managers had to work within. His candidness in discussing the problems the fund faced, however, is itself suggestive of the scale of the changes that have been occurring. (article continues below)

“At the end of the year we brought in some enhancements to the process and made the fund more flexible,” he says. “We changed the funds from Oeics to Nurs [Non-Ucits retail schemes] allowing us to move towards a more multi-asset approach. We also wanted to be more opportunistic in our fund selection.”

 

The move to the Nurs structure followed similar switches by other groups including both Gartmore’s and Henderson’s multi-manager ranges. Unlike under Ucits III regulations Nurs funds are able to invest in open-ended alternative funds such as property, private equity, infrastructure and hedge funds.

For Fidelity this offered opportunities that had previously been unavailable.

“What happened with hedge funds over the crisis has meant that a number of them moved into the Ucits space,” Philalithis says. “A lot of these funds, including equity long/short and global thematic funds, look interesting.”

 

While these can play a part in the fund, the manager says it will remain a small part of the portfolio. With the next year looking challenging for fixed income investors, Philalithis says his main focus is on fundamental research to pick the best managers for the current climate.

“Corporate bonds had a fantastic year last year but that was going to slow,” he says. “2009 was exceptional in terms of capital growth whereas 2010 looks likely to be a more income-focused year.”

One area that he remains fairly positive on is the banking sector. He says despite headwinds from sovereign risk and the threat of regulatory reform affecting sentiment, the fact that the industry has undergone a period of rebuilding and shoring up balance sheets mean investors in tier 1 and tier 2 debt should “still get value”.

 

On the sovereign debt side the problems in western economies has driven attention further afield.

“On the sovereign side we wanted exposure to high-quality sovereigns that haven’t been printing money,” says Philalithis. “So that has pushed us into Asian emerging markets. We are also looking at global equity income.”

Over the past year to June 11 the Income fund has returned 15.11% against an Investment Management Association (IMA) Cautious Managed sector average return of 14.08%.