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Partner Content by Fidelity

A balancing act for income in 2021

Sustainability factors are reflected in all multi asset portfolios owing to the fundamental integration of ESG in our underlying strategy and instrument research process. The team formally assesses the ESG characteristics of all strategies under coverage, and we believe this added layer of analysis helps us to ensure we have a deep understanding of the factors driving investment decisions. Our research analysts are expected to fully integrate ESG assessments into their initiation research and ongoing assessment of in-house and third-party strategies. Engagement is a big part of what we do. 

Earlier this year for example we engaged with the management of one of the third-party managers we invest with on the topic of cybersecurity, reviewing processes and controls in place as we felt that action needed to be taken to strengthen these. We engage with management on all aspects of ESG with the aim to influence positive change.

What are your areas of highest conviction and where are you avoiding?

Across our income-focused investment strategies, the team remains focused on delivering a sustainable yield and capital preservation. We maintain highly diversified exposure to yield-generating asset classes and manage risks carefully. 

We maintain a preference for credit assets such as high yield bonds, over equities, as credit markets have explicit central bank support and valuations have not advanced to the same extent. However, developments on the vaccine front and continued easy monetary and fiscal policy are likely to provide support for equity markets. We have recently closed our equity hedges and continue to explore opportunities in sectors that have lagged in the recovery and stand to benefit from a more positive economic outlook. 

Chinese government bonds continue to be an area of conviction as a defensive asset class offering a meaningful yield pickup over other government bond markets. Our conviction level is strengthened by the inclusion of Chinese Government Bonds in the World Government Bond Index, providing a significant tailwind for the asset class. We have been adding to this exposure in the income portfolios in recent months.

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Important Information

This information 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 and you may not get back the amount invested. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. The Fidelity Multi Asset funds use financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Investments in overseas markets, changes in currency exchange rates may affect the value of an investment. Investments in emerging markets can be more volatile than other more developed markets. The value of bonds is influenced by movements in interest rates and bond yields. If interest rates and so bond yields rise, bond prices tend to fall, and vice versa. 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 issuer's ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between different 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. Reference in this document to specific securities should not be interpreted as a recommendation to buy or sell these securities and is only included for illustration purposes. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document, current annual and semi-annual reports free of charge on request by calling 0800 368 1732. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM1220/32705/SSO/NA