From 16 August the fund will have the ability to buy corporate bonds denominated in other currencies, but will remain in the IMA Corporate Bond sector, meaning that the foreign currency debt must make up less than 20 per cent of the fund. The £3.4bn fund will hedge its exposure back in to sterling, to avoid taking on currency risk.
"As well as providing the fund manager with the opportunity to invest in a more diverse range of securities, allowing exposure to non-sterling denominated investments will also be beneficial to the fund as it will provide additional liquidity and maintain the fund’s potential to deliver consistent performance over the long-term," Fidelity said in a letter to advisers.
Spreadbury’s £3.4bn fund is the third largest in the sector, according to inflows data from FE Analytics, and remains one of the most bought over the past year.
This is despite a recent tail-off in performance that has seen the fund record fourth-quartile figures over the past year – a gain of just 11.49 per cent.
Performance of fund vs sector over 1yr
Source: FE Analytics
The manager’s fund is still top-quartile over five and 10 years, however, having outperformed its sector average in every calendar year from 2004 to 2011, according to our data.
Spreadbury has remained cautious amid the rising market of the past 12 months, which has hit relative performance, as Rob Morgan, investment analyst at Charles Stanley Direct explains.
"It’s a conservative fund and the underperformance is more a reflection of the fact it won’t hold some of the riskier areas such as high yield and financials," he said.
Spreadbury told FE Trustnet last month that he was staying out of cyclical sectors, even amid a rising market.
The manager’s Fidelity Strategic Bond fund, which has a wider remit than the corporate bond fund, has also underperformed over one year, but Spreadbury said he was sticking to his guns and not going down the credit scale to boost returns.
Morgan suggests that the change of mandate reflects the lack of liquidity in the UK corporate bond sector.
Despite the rising market of the past year, appetite for bonds has remained high as investors seek security, but Morgan explains that issuance is falling.
"It’s a reflection of the shrinking pool of fixed interest assets that are out there," he said.
"There’s a significant amount of money that wants to find a home in the fixed interest market, but the pool of potential investments is getting no bigger."
"As companies retire debt, it’s eventually paid back and a lot of companies are doing quite well and aren’t issuing new debt because they don’t need to."
"The pool of investments isn’t getting bigger, while there is a lot of money coming into the market."
Spreadbury’s fund will hedge away the currency exposure, meaning that investors in the fund will not be taking on the risk of currency movements going against them.
Morgan says that the hedging will be carried out with the use of derivatives, but this is not something investors should worry about.
"There are other funds out there already in the sector which do the same thing," he said.
"There is a cost to using swaps or derivatives, but on such a large fund it’s not significant."
"There’s potential counterparty risk with those sort of things, but in this particular case there isn’t significant added risk."
Fidelity Moneybuilder Income requires a minimum initial investment of £500 and has ongoing charges of 1 per cent.
