IMPORTANT INFORMATION
Asset class
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2
Process
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Differentiator
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Team
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Track record
FOR PROFESSIONAL INVESTORS ONLY
Fidelity has been managing money markets since 1995 with the Fidelity Cash Fund launching in 2016. The fund is managed using a very process driven approach to deliver consistent long-term performance.
In this fund in five we talk to Christopher Ellinger, manager of the Fidelity Cash Fund, to look at the fund from five angles and understand why investors need to think of cash as a standalone asset class within their portfolios.
Presenting the Fidelity Cash Fund
The Fidelity Cash Fund aims to provide capital preservation and liquidity as a priority, then maximise the fund’s yield within strict regulatory parameters.
* Excluding formal firm-wide and fund-level exclusions
“In an environment in which we expect interest rates to be higher for longer, investors can expect some very attractive risk-adjusted returns over the next few years and therefore we expect to see higher allocations to cash,” says Ellinger.
As cash fund yields tend to move in step with the central bank base rate, Ellinger adds that as an asset class it is much less volatile and has a low correlation to equities and bonds, making it a good hedge for investors in a risk averse environment.
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Multi-strategy approach
High conviction trades that provide diversification across a number of different issuers, sectors and regions.
Highly liquid
A liquid way to manage cash, with settlement the following business day, should you wish to move your money.
Rigorous process
Follows strict investment guidelines and regulations to provide a prudent approach to all aspects of risk management.
To achieve its objectives of capital preservation, liquidity and returns, the Fidelity Cash Fund is diversified across regions, sectors and issuers – typically investing in 20-40 issuers.
The investment process in selecting these issuers is broken down into three steps: term structure strategy, credit selection and regulatory constraints.
Holding mainly overnight deposits, certificates of deposits and commercial paper, Ellinger says credit is selected from an approved list of high-quality issuers, including sovereigns, supranationals, sovereign agencies, banks and corporates.
“The first thing we do is set the weighted average maturity of the fund based on our outlook for the direction of travel of interest rates,” says Ellinger. “For the last 18 months we’ve had a low weighted maturity as we have gone through the hiking cycle with the aim of trying to capture those interest rate increases as quickly as possible.”
All of this is alongside maintaining appropriate levels of overnight and one week liquidity, which we keep well above regulatory minimums.
In a homogeneous asset class such as money market funds, Ellinger admits it can be quite difficult to differentiate across different fund offerings.
“We have a very conservative bias,” he says. “We stick to the highest quality, developed market issuers and global systemically important banks.”
Ellinger adds the team’s conservative approach to credit and liquidity has meant the fund performed well through periods of market stress such as Covid and the LDI crisis last year, with very little volatility.
Given the makeup of money markets, the portfolio’s main exposure is to banks, while the exposure to corporates is smaller because Ellinger notes the universe is smaller and there are less frequent issuers in that space.
5.27%
Distribution yield*
0.15%
Ongoing charge figure*
£1.42BN
Fund AUM*
*Source: Fidelity International, 2023. The Ongoing Charge Figures is as at 31.01.2024. This figure may vary from year to year. The AUM and Distribution Yield is as at 31.12.2023. It reflects the amounts that may be expected to be distributed over the next twelve months as a percentage of the mid-market unit price of the fund as at the date shown and is based on a snapshot of the portfolio on that day. It includes the fund’s ongoing charges but does not include any preliminary charge and investors may be subject to tax on distributions.
“Exposures to sovereigns and supranational agencies tends to be smaller mostly because of the pricing within the market,” he adds.
Ellinger has been lead portfolio manager of the The Fidelity Cash Fund since 2018 and working alongside him is co-manager Tim Foster, who has been running money market funds at Fidelity since 2007.
Combined the managers have industry experience of 38 years.
“Day-to-day it is the role of the lead manager to set issuers allocations, the liquidity limits and the weighted average maturity, but we are in constant dialogue and have worked together for many years,” says Ellinger.
The team also draw upon the experience of the dedicated money market traders and credit research team and with the credit team who provide an independent credit assessment and must approve issuers for purchase by the fund.
The managers also leverage Fidelity’s internal ESG research to supplement its assessment of credit risk.
Fidelity has been managing money markets since 1995 and the Fidelity Cash Fund was launched in 2016.
“While the yield of the fund is primarily driven by base rates, we aim to outperform by adjusting the weighted average maturity, looking at times when spreads are more attractive and also having a diverse list of high-quality issuers to choose from,” Ellinger says.
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“At the same time management of the fund is very process driven, sticking to that process has helped us to deliver consistent long-term performance,” he adds.
PAST PERFORMANCE IS NOT A GUIDE TO FUTURE RETURNS. Source: Fidelity International, Bloomberg, as of 31 December 2023. W-ACC share class shown. Basis: bid-bid with income reinvested, in GBP, net of fees. Ongoing charges of 0.15% per year apply.
This is for investment professionals only and should not be relied upon by private investors. The value of investments and the income from them can go down as well as up so you may get back less than you invest. The value of investments in overseas markets may be affected by changes in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. Rising interest rates may cause the value of your investment to fall. 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 issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between 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. They can also use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Issued by FIL Pensions Management and Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority authorised. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM1023/382376/SSO/1223
