Fidelity global bond portfolios move overweight credit, underweight Eurozone government bonds

Fidelity’s global bond portfolio managers have continued to see the current bond market volatility as an opportunity for selective buying opportunities and have identified credit opportunities in investment grade corporate bonds in the insurance and telecoms sectors as well as the emerging markets.

The slightly overweight corporate bonds position in Fidelity’s global bond portfolios is countered by a marginally underweight move from bonds issued by US government and government-sponsored agencies, banks, utilities and also Eurozone government bonds.

Andy Weir, fixed income portfolio manager at Fidelity International, comments, “Whilst markets are moving rapidly, our conviction is that fundamentals remain strong. Eurozone gross domestic product data remains robust and in general corporate earnings have been good.

“What we have seen is investors who have had exposure to US sub-prime mortgages acting in fear of illiquidity – more simply that they won’t be able to sell their investments. In response central banks have been proactive in injecting liquidity into the market which seems to have partially improved market confidence.

“Fidelity International’s global fixed income funds have not been directly exposed to the US sub prime market – which means we have not suffered from liquidity issues and have not had to sell liquid and profitable positions to compensate losses in illiquid positions. We believe it is therefore an opportune moment to add selected securities to portfolios.

“Opportunities have been thrown up by widened credit spreads – the additional returns offered by corporate bonds over government bonds. We have taken this opportunity to marginally increase our overweight credit and underweight Eurozone government bond positions. The latter driven by less tight Euro credit market valuations, which reduce incentives for off benchmark strategies.

“Within our credit allocation we have taken selected positions in emerging markets debt, and investment grade insurance and telecoms debt. At the same time underweights include agencies, banks, government bonds and utilities.”