Fidelity Income Plus
Fidelity Income Plus needs to prove itself.
These are unlikely to be the only changes to the portfolio, and once Clark gets to grips with the fund we would expect to see a slight fall in the number of holdings. His pilot fund at Fidelity held around 40 names, and while we don’t expect that bigger reduction we do anticipate that holdings will fall from around 60 historically to nearer 50. Although present market volatility means things can change quickly, Clark also noted he thought the bear case for big-cap pharma was overdone given that companies in the sector tend to be well financed and provide strong dividends. Clark is also looking at the banking sector with some interest, and his experiences as an analyst with Enskilda during the Swedish banking crisis of the early 90s provides him with meaningful perspective. When we spoke to him earlier this summer, he was in the process of seeking out strongly capitalised banks with a history of prudent lending.
In line with the fund's income mandate, yield is still a key consideration and Clark expects the fund to yield 120% of its FTSE All Share index. He won't buy low quality names just because they offer a plump yield, however--he wants to know where dividends are coming from and that they are sustainable. With regard to ascertaining the latter, he looks for a history of good dividend growth, strong cash flows coupled with low earnings risk, and uses both external sell side research and Fidelity’s own analyst pool to further build up the fundamental picture of companies who pass the fund's yield requirements. On the other side of a bar-bell approach to portfolio construction, Clark looks for capital growth opportunities. Here, he prefers attractively valued recovery situations or sectors which are currently out of favour. After meeting company management, the final stage of Clark’s process is an assessment of a company's internal rate of return.
The early results for Clark are far too brief to be meaningful, but we like his stated focus on balance sheet strength and firms with high IRRs. We also believe the backing of Fidelity’s restructured analyst staff, the group’s new manager training programme, and an impressively low TER also argue in its favour. However, given that Clark is so new to the role and the fund is in a highly competitive sector, we can't see any strong reason to choose it over its peers until we've seen more of what he can do.
