Investing for retirement with mutual funds Eugene Philalithis - - PowerPoint PPT Presentation

Investing for retirement with mutual funds

Eugene Philalithis

Portfolio Manager - Multi Asset Fidelity International

Overview of retirement solutions

Balanced fund Income funds Fixed term funds Term funds with protection Annuities

What is an appropriate pay-out rate?

Source: Fidelity International, 2019. Based on Fidelity capital market assumptions, the 50th percentile of projected outcomes and a 60% global equity and 40% global bond

• portfolio. For illustrative purposes only.

Capital remaining for a range of income levels $ income for $100 initial investment

0% 20% 40% 60% 80% 100% 120% 140% 5 10 15 20

Expected capital remaining for a range

• f income levels

Term (years)

4% 5% 6% 8% 10% 2 4 6 8 10 12 5 10 15 20

Expected income for $100 initial investment Term (years)

4% 5% 6% 8% 10%

The attributes of an effective retirement solution

Sustainable income Risk and drawdown mitigation Flexibility to capture attractive opportunities

The income challenge

Source: Refinitiv DataStream, ICE BofA Merrill Lynch. Bond indices - redemption yields, MSCI equity indices - dividend yields. Current yields as at 30 September 2019. 1This is a rough indicator of the yields from various holdings in the FF - Global Multi Asset Income Fund and will not match actual yield levels. Yields of underlying holding are on a local currency basis.

Yields across asset classes

• 2

2 4 6 8 10 12

• 2

2 4 6 8 10 12 $ cash 1 month € cash 1 month £ cash 1 month ¥ cash 1 month US 10Y gov. Germany 10Y gov. UK 10Y gov. Japan 10Y gov. US corp. bonds EMU corp. bonds UK corp bonds Japan corp. bonds EM debt US high yield EMU high yield Asian high yield US equities European equities UK equities Japan equities Asia ex Japan Equities Emerging Market Equities Loans/structured credit Infrastructure Specialist real estate (REITs) Yield (%) Pre-crisis yields (%) as of 30 June 2007 Coloured bars = current yields Gross estimated future distribution yields1

Addressing the income challenge

Source: Fidelity International, 2019. For illustrative purposes only. The portfolio managers are not restricted to the asset classes specified in the table above and have the flexibility to invest in others where appropriate - for example mortgages/ABS, hybrid bonds and reinsurance. Alternatives includes infrastructure, renewable energy, asset leasing, REITs and mortgages.

US Europe Asia Emerging Markets Government bonds     Investment grade corporate bonds     High yield bonds     Loans   Structured credit   Hybrid bonds   Equity income     Alternatives

A global approach Stay truly diversified Access via specialist managers

Developing sources of income

Source: Fidelity International, Hong Kong Exchanges and Clearing Limited, China Central Depository &Clearing Co., Ltd (CCDC), Citi, WIND, as of December 2018. Past performance is not a reliable indicator of future results.

Forecasted growth

Chinese onshore bond market will become the 2nd largest in the world

50 100 150 200 250 300 350 400 450 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Market size (RMB trn) Lower Range Upper Range

Successful drawdown management needs a range of tools

Source: Morningstar Direct. Performance Basis: NAV-NAV, gross income reinvested in US dollars for the A-MINCOME(G)-USD share class. Since inception of the FF Global Multi Asset Income Fund on 27 March 2013 to 31 August 2019. QE Tapering - Round 1 was from 1 May 2013 to 30 June 2013. China Rout was from 1 August 2015 to 31 October 2015. 2016 Start of the Year Volatility was from 1 January 2016 to 29 February 2016. Brexit was from 19 June 2016 to 5 July 2016. 2018 Inflation Concern was from 1 January 2018 to 16 February 2018. 10Y UST Cross Over 3.2% was from 21 September 2018 to 13 October 2018. Global equities represented by the MSCI ACWI (N) Index; Asian Equities represented by the MSCI AC Asia Pacific ex Japan (N) Index. Peer group is the average drawdown statistic of Morningstar GIF USD Moderate Allocation. Past performance is not a reliable indicator of future results.

• 35%
• 30%
• 25%
• 20%
• 15%
• 10%
• 5%

0%

Since Inception (27 Mar 2013 - 31 Dec 2018) QE Tapering Round 1 (01 May 2013 - 30 Jun 2013) China Rout (01 Aug 2015 - 31 Oct 2015) 2016 Start of the Year Volatility (01 Jan 2016 - 29 Feb 2016) Brexit (19 Jun 2016 - 05 Jul 2016) 2018 Inflation Concern (01 Jan 2018 - 16 Feb 2018) 10Y UST Cross Over 3.2% (21 Sept 2018 - 13 Oct 2018)

Fund Peer Group Global Equities Asian Equities

Reduced interest rate sensitive assets Duration management Alternatives

• Hedged GBP
• Equity hedges

Feb-16

Equity hedges Currency management Reduced risky assets Reduced risky assets

Tools for risk mitigation: Flexible asset allocation

Source: Fidelity International, 2019. This is an illustration of FF - Global Multi Asset Income Fund. The Portfolio managers are not restricted to the asset classes specified in the chart above and have the flexibility to invest in others where appropriate. These are indicative ranges only and do not necessarily constitute legal limits as defined in the fund prospectus.

Income assets 20-100% Hybrid assets 0-80% Growth assets 0-80% 60% 50% 50% 25% 60% 50% 20% 10% 50% 30% 30% 0% 20% 40% 60% 80% 100% Investment grade bonds EM debt (hard currency) Government bonds Cash High yield bonds EM debt high yield EM debt (local currency) Loans/structured credit Equity (incl. enhanced income) Infrastructure Specialist real estate (REITs)

Flexible asset allocation on a flagship income strategy

A typical defensive allocation

Source: Fidelity International, 31 September 2019. These are allocations at the top multi asset overlay level.

0% 5% 10% 15% 20% 25% Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Investment grade bonds - Global Investment grade bonds - US Investment grade bonds - Asia Investment grade bonds - China Government bonds - Australia Government bonds - UK Government bonds - US Government bonds - China

Tools for risk mitigation: Overlays

Source: Fidelity International, 2019.

Effective risk portfolio management through overlays Fixed income overlay Currency overlay Equity overlay

• Index futures
• Countries
• Sectors
• Duration management
• Index futures
• Countries
• USD exposure management
• Currency hedges
• Other currency exposure

management

Risk and drawdown mitigation

Source: Fidelity International, 2019. For illustrative purposes only. The portfolio managers are not restricted to the asset classes specified in the table above and have the flexibility to invest in others where appropriate - for example mortgages/Asset Back Securities, hybrid bonds and reinsurance. ^ABS stands for Asset Backed Securities. *MBS stands for Mortgage Backed Securities.

• 2%
• 1%

0% 1% 2% 3% 4% Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Hedge introduced Hedge closed Hedge increased Hedge trimmed

EM FX model (extract) EM currency basket

EM FX basket

BRL CLP COP MXN CZK HUF PLN Nominal carry 0.2%

• 0.1%

0.0% 0.5%

• 0.2%
• 0.6%
• 0.3%

Real carry 0.1%

• 0.1%
• 0.1%

0.4%

• 0.4%
• 0.5%
• 0.3%

Carry / vol

• 0.1%

0.0%

• 0.1%

0.1%

• 0.2%
• 0.4%
• 0.2%

FX momentum 0.3%

• 0.3%
• 0.4%

0.4%

• 0.1%
• 0.2%
• 0.1%

APPP

• 1.0%
• 1.5%

0.4%

• 0.8%
• 1.3%
• 0.4%
• 0.2%

BBoP 1.5%

• 1.5%
• 0.9%

1.2%

• 0.6%

0.0% 1.8% Total 0.9%

• 3.5%
• 1.1%

1.8%

• 2.8%
• 2.2%

0.7% Previous 0.3%

• 0.5%
• 1.9%

1.5%

• 3.2%
• 2.7%

0.3%

0% 20% 40% 60% THB IDR PHP MYR TWD INR CNY KRW PKR RUB BGN CZK PLN RON HUF TRY MXN PEN CLP BRL COP ARS ILS SAR AED BHD KWD ZAR KRW HUF CZK TWD SGD THB

EM FX bespoke currency hedging strategy in income portfolios

EM FX hedge performance

Capturing opportunities for capital appreciation

Source: Fidelity International, using ICE BofA Merrill Lynch Indices (ADHY), Bloomberg, 31 September 2019. Based on FF - GMAI and for illustrative purposes only.

A selected example of an Asia high yield allocation and Asia high yield credit spreads

100 200 300 400 500 600 700 800 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Allocation High yield bonds - Asia Asia HY spread

Source: Fidelity International Quantitative Research, as of May 2019

Markets research Equity & Fixed Income research

Identifying and building conviction in opportunities

• Stimulus to eventually stabilise growth
• China credit impulse vs. global manufacturing PMI
• HY credit ratings improved, while remaining static for IG and

versus US HY

• Asia leads the reduction in corporate balance sheet leverage

Source: PBoC, JPM/Markit; Haver Analytics. Fidelity International, July 2019.

48 49 50 51 52 53 54 55 56

• 4,000
• 2,000

2,000 4,000 6,000 8,000 10,000 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Jan-21 China: Total Social Financing + Local Govt Bond Issuance (12m change, leading 12 months, RMB bn.) Projection: based on year-to-date credit growth rate Projection: based on latest three months Global Manufacturing PMI Using Markit Mfg for U.S. (SA, 50+=Expansion) 1 2 3 4 5 6 '11 '12 '13 '14 '15 '16 '17 '18 '19 Net Debt / EBITDA Asia HY Europe HY America HY

Source: Fidelity International, 31 July 2019. Based on ICE BofA Merrill Lynch Indices, 31 July 2019.

Quant research Manager research

Identifying and building conviction in opportunities

• Models indicate ‘risk on’ in Asia high yield
• Asia high yield hedging model
• Leverage fell to below 2015 levels between 2016-18
• Valuations were at their cheapest for over 2 years - OAS per

turn of leverage

Source: Fidelity International, 31 July 2019. Date MXASJ CSRAI FLI GSCI Aggregate Aggregate Smooth 01/03/2019 100% 100% 7% 43% 75% 58% 01/04/2019 100% 63% 8% 100% 70% 64% 01/05/2019 100% 100% 16% 100% 94% 78% 03/06/2019 0% 54% 28% 100% 54% 70% 01/07/2019 100% 100% 43% 100% 100% 79% 01/08/2019 90% 87% 48% 75% 75% 86%

Deep research to identify and build conviction in opportunities Diversification, flexibility and derivative powers 4-5% from a globally diversified portfolio

The attributes of an effective retirement solution

Sustainable income Risk and drawdown mitigation Flexibility to capture attractive opportunities

Important information

This document is for intermediaries only and not for external distribution. All external distribution requires prior written approval from Fidelity. FIL Limited and its subsidiaries are commonly referred to as Fidelity or Fidelity International. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. The information contained in this material is only accurate on the date such information is published on this material. Opinions or forecasts contained herein are subject to change without prior notice. Reference to specific securities mentioned within this material (if any) is for illustrative purpose only and should not be construed as a recommendation to the investor to buy or sell the same. Investment involves risks. Past performance is not indicative of future performance. Please refer to the relevant offering documents for further information including the risk factors. If Investment returns are not denominated in HKD/ USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. This material may contain materials from third parties which are supplied by companies that are not affiliated with any Fidelity entity ("Third Party Content"). Fidelity has not been involved in the preparation, adoption or editing of such third party materials and does not explicitly or implicitly endorse or approve such content. Any opinions or recommendations expressed on third party materials are solely those of the independent providers, not of Fidelity. Third Party Content is provided for informational purposes only. The material is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Futures Commission (“SFC”).