Three years after Sajiv Vaid joined Fidelity International to join veteran manager Ian Spreadbury on its flagship fixed income product, FE Trustnet asks investment experts whether investors should have followed the experienced bond manager or remained invested in his former fund.
As part of an ongoing series looking at some of the high-profile manager changes three years on, in this article considers Vaid’s high-profile move to Fidelity, having previously written about Investec’s hiring of Simon Brazier.
Vaid had been co-manager of the Royal London Corporate Bond fund alongside Jonathan Platt before leaving Royal London Asset Management (RLAM) to join FE Alpha Manager Ian Spreadbury on his £3.7bn Fidelity Moneybuilder Income portfolio as part of a succession plan.
Gill Hutchison, research director at The Adviser Centre noted however that “in taking on this role, Vaid was sensitive to the heritage of the fund and there has been no disturbance to the approach that has been in place for many years”.
She said: “Fidelity Moneybuilder Income remains a diversified corporate bond fund that is ideally placed as a mainstay fixed income holding for a portfolio.”
The fund is run with a strong eye on credit selection and the managers do not use interest rate management strategies as a major source of performance delivery.
“Rather, they believe that this fund should stay true to the key characteristics of the asset class and retain its traditional role as an equity diversifier,” added Hutchison.
Performance of funds since manager left/started
Source: FE Analytics
When Vaid departed Royal London, team-member Shalin Shah was promoted to the fund alongside Platt, but the
“While this fund is regarded as relatively core within RLAM’s suite of corporate bond funds, it has characteristics that set it apart from its mainstream peers in the sector,” the Adviser Centre research director noted.
The five FE Crown-rated fund is run with credit selection at its heart, although it has a wider remit such as using unrated bonds and interest rate views can be taken at times.
Since Vaid left RLAM his former fund has actually outperformed his new mandate by 4.28 percentage points, as the above chart shows.
However, AJ Bell head of active portfolios Ryan Hughes said that he remains a big fan of both funds, with both on the firm’s list of preferred funds and included in its managed portfolio service.
“Over the three years, Royal London has won the performance battle, comfortably outperforming both Fidelity [Moneybuilder Income] and the peer group. But this is not that surprising given the environment we have had where I would expect Royal London’s slightly higher exposure down the credit curve and exposure to unrated bonds to have benefited,” he said.
“Fidelity tend to be a little high quality which should stand them in good stead when the environment is more challenging.”
He added that while Royal London would have been disappointed to lose Vaid, the team-based approach and strength in depth has meant that it was able to cope with his loss.
Hargreaves Lansdown research director Mark Dampier agreed, noting that just because they both sit in the IA Sterling Corporate Bond sector it does not mean they will perform the same.
“Actually, the Royal London and Fidelity funds are classics in doing different things. You would probably buy the Royal London one on past performance, which is fine, but they are just different,” he said.
Dampier added that Fidelity Moneybuilder Income currently has a 9.64 per cent weighting to UK gilts, according to the most recent fund factsheet, meaning that the fund may be more cautious than its Royal London peer.
Top 10 holdings of Fidelity Moneybuilder Income
Source: Fidelity International
“They are going to behave a little bit differently in different climates that’s also [now] a more risk-off environment [where] Royal London wouldn’t do so well I suspect,” he said.
Not all agreed that the pair would make for a good coupling, however, with Shore Financial Planning director Ben Yearsley saying the two funds are both core investment-grade bond portfolios.
Indeed, he highlighted that both funds had similar durations – between 7.2 and 7.5 years – with both looking to take a more cautious approach.
Additionally, when “looking through all the commentary they are in one sense very similar” he said, with both preferring safer, asset-backed bonds with a lower appetite for risk.
“What it comes down to is that actually Royal London has just picked better bonds. Performance-wise they were very close up until the beginning of 2017 and then since then Jonathan Platt has stuffed Ian Spreadbury,” he noted.
He added that while the large gilt position may make the Fidelity fund look less risk-on, it is dangerous to look at the factsheet as it only offers a snapshot on a certain day.
“The Fidelity [factsheet] is a snapshot in time of one particular day where he had a 9 per cent holding in a gilt – you don’t know why,” he said.
“They might have had a bit of inflow of cash that day and wanted to put it to work. Just looking at that one point in time is always a dangerous thing to do without the context behind it.”
However, the main reason he would not hold the two funds together as a perfect pairing is because there is no need for more than one core investment-grade bond fund. 
Yearsley (pictured) said: “The reason I wouldn’t have even thought about having both necessarily is I would consider both core investment grade bond funds and how many of those do you actually need?
“If you end up with three or four then you might as well buy a tracker fund because you end up with the whole market.”
He added that this applies to any sector – not just the corporate bond sector – but that with this particular example, both are long-term core funds and as such would not be an appropriate pairing.
While he does not own any dedicated investment grade bond funds at the moment, if he were to choose one it would be the Royal London Corporate Bond fund.
“Their strength is in their fixed interest with Jonathan Platt and Eric Holt and the wider team,” he said.
However, with the backdrop of 2 per cent inflation and low interest rates, he noted that both funds – which have made double-digit returns – have been strong performers for investors.