Fidelity has changed the benchmark of Peter Khan’s Global High Yield fund from a market weighted strategy to an equal risk contribution (ERC) composition.
Normally global high yield indices are skewed towards the US, which generally makes up more than half the risk.
But as the European and emerging markets high yield sectors have grown, Fidelity has opted for an ERC composition. This provides an alternative way to distribute market exposure.
The ERC looks at how the six regions that make up the high yield universe – US, Europe, UK, Central and Eastern Europe and Middle East and Africa, Latin America and Asia are related to each other and how their correlation changes.
By adopting this benchmark the fund’s US exposure will come down from 55 per cent to 20 per cent over time. Meanwhile, the emerging market exposure will climb from 15 per cent to 40 per cent.
The UK exposure will also jump from approximately 4 per cent to 17 per cent.
In a note Fidelity said: “The end product is a risk-balanced benchmark which reduces concentration, delivers higher risk adjusted and absolute returns, while maintaining full exposure to the underlying universe.”
A spokesperson from Fidelity said: “In our view splitting risk among the six regions that make up the universe is a superior way to manage the fund”.
