fidelity’s high income division€¦ · recent market performance volatility in march has...
TRANSCRIPT
All information as of 3/31/20 unless otherwise noted.
© 2020 FMR LLC. All rights reserved.
Scott Mensi
Institutional Portfolio Manager
Brian Drainville
Institutional Portfolio Manager. High
Income Division, Emerging Market Debt
April 7, 2020
Fidelity’s High Income DivisionMarket Update and Investment Opportunities
High Income Group Overview
Asset ManagementOver 40 years of experience serving institutional high-income clients worldwide
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Source: Fidelity Investments. Fidelity assets under management are as of 12/31/19. High Income assets noted are as of 03/31/2020.
Data is unaudited. These figures reflect the resources of Fidelity Investments, a U.S. company, and its relevant affiliates.
Research professionals include research analysts and associates and reflect the combined resources of FIAM and Fidelity Investments.
Global investment professionals and high income investment professionals as of 12/31/19.
Fidelity assets include the combined resources of FIAM and Fidelity Investments.
History
Fidelity founded in 1946
Fidelity has been
managing
High Income since 1977
Global multi-asset class
solutions provider
People
Global Investment
Professionals:777
High-Income
Professionals:
Research:
Trading:
Special Situations:
Portfolio
Management:
60
34
7
1
18
Assets
Fidelity Assets Under
Management:$3.0T
High Income:
Leveraged Loans:
High Yield Debt:
High Yield Equities:
Emerging Markets:
Real Estate Debt:
$88B
$16B
$44B
$6B
$14B
$8B
Large asset base facilitates significant resources and improved market access.
Recent Market PerformanceVolatility in March Has Impacted Most Asset Classes
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Asset Class Index 1 Month YTD 1 Year
U.S. Equities S&P 500 -12.35 -19.60 -6.98
Bonds BBgBarc U.S. Aggregate Bond -0.59 3.15 8.93
High Yield ICE BofA U.S. High Yield Constrained -11.77 -13.13 -7.46
Leveraged Loans S&P/LSTA Leveraged Loan -12.37 -13.05 -9.13
Emerging Market Debt JPM EMBI Global -12.55 -11.76 -5.28
As of 3/31/20
Past performance is no guarantee of future results. Not intended to represent the performance of any Fidelity fund.
Indexes are unmanaged. It is not possible to invest directly in an index.
Market Update
High Yield Bond Market Update
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-40%
-20%
0%
20%
40%
60%
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
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YT
D 2
020
To
tal R
etu
rn
High Yield Bond Market Performance
Income Return Price Return Total Return
877
556
0
500
1,000
1,500
2,000
2,500
De
c-9
6
Jun-9
7
De
c-9
7
Jun-9
8
De
c-9
8
Jun-9
9
De
c-9
9
Jun-0
0
De
c-0
0
Jun-0
1
De
c-0
1
Jun-0
2
De
c-0
2
Jun-0
3
De
c-0
3
Jun-0
4
De
c-0
4
Jun-0
5
De
c-0
5
Jun-0
6
De
c-0
6
Jun-0
7
De
c-0
7
Jun-0
8
De
c-0
8
Jun-0
9
De
c-0
9
Jun-1
0
De
c-1
0
Jun-1
1
De
c-1
1
Jun-1
2
De
c-1
2
Jun-1
3
De
c-1
3
Jun-1
4
De
c-1
4
Jun-1
5
De
c-1
5
Jun-1
6
De
c-1
6
Jun-1
7
De
c-1
7
Jun-1
8
De
c-1
8
Jun-1
9
De
c-1
9
Op
tio
n A
dju
ste
d S
pre
ad
(b
ps) High Yield Bond Spreads
Option Adjusted Spread Average
Source: ICE Data Services as of 03/31/20
Income Return represents the portion of total return derived from the asset class’s income (coupon) and price return represents the portion of total return
from price (market value) fluctuations.
Option Adjusted Spread (OAS) is a measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is adjusted to take
into account an embedded option. Typically, an analyst would use the Treasury securities yield for the risk-free rate. The spread is added to the fixed-
income security price to make the risk-free bond price the same as the bond.
Total return represented by ICE BofAML U.S. High Yield Index through 2006 and ICE BofAML U.S. High Yield Constrained Index thereafter. It is not
possible to invest directly in an index. All market indices are unmanaged. Past performance is no guarantee of future results.
Leveraged Loans Vs. High Yield BondsTwo Ways to Invest in Non-Investment Grade Debt
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Leveraged Loans High Yield Bonds
Ranking Senior Secured Senior/Subordinated
SecurityMay Be Secured by Collateral
(e.g. assets or company stock)Unsecured
Coupon Floating Fixed
Call Protection None or Limited Typically 3 to 5 Years
Principal Covenants
Maintenance tests (if “covenant-heavy”
loans)—maintain predetermined
financial ratios
Incurrence tests—limits additional
leverage
or dividends
Leveraged Loan Market Update
L+910
L+465
L+0
L+200
L+400
L+600
L+800
L+1,000
L+1,200
L+1,400
L+1,600
L+1,800
L+2,000
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
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08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
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18
20
19
20
20
Dis
co
un
ted
Sp
read
s(A
bo
ve L
IBO
R -
“L
+”)
Loan Market Spreads
Discounted Spread-All Loans Average
Source: S&P Capital IQ LCD as of 3/31/20.
Income Return represents the portion of total return derived from the asset class’s income (coupon) and price return represents the portion of total return
from price (market value) fluctuations.
Discounted spreads represents the amount over LIBOR (“L+“) that the loan pays as interest. Discounted spread calculation above assume a 4-year life
and includes any LIBOR floor benefit.
Total return represented by S&P/LSTA Leveraged Loan Index. It is not possible to invest directly in an index. All market indices are unmanaged. Past
performance is no guarantee of future results.8
-40%-30%
-20%
-10%
0%
10%
20%
30%40%
50%
60%
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97
19
98
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99
20
00
20
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02
20
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YT
D 2
020
To
tal R
etu
rn
Loan Market Performance
Income Return Price Return Total Return
Emerging-Market Debt MarketSovereign spread vs. credit quality
Source: JPMorgan as of 3/31/20
It is not possible to invest directly in an index. All market indices are unmanaged.
Past performance is no guarantee of future results.
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0%
10%
20%
30%
40%
50%
60%
70%
80%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Dec
-93
Dec
-94
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
Dec
-14
Dec
-15
Dec
-16
Dec
-17
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-18
Dec
-19
. EM
BIG
Ind
ex %
Inve
stmen
t Gra
de
EM
BIG
Yie
ld S
pre
ad
Ove
r U
S T
reasu
ry .
JP Morgan EMBI Global IndexJanuary 1, 1994 to March 31, 2020
Yield Spread EMBIG % I-Grade
0
200
400
600
800
Jan-20 Feb-20 Mar-20
Yie
ld S
pre
ad
High Income Opportunities
Relative Value of High Yield and Equities
-2
0
2
4
6
8
10
12
14
16
Se
p-8
6
Se
p-8
7
Se
p-8
8
Se
p-8
9
Se
p-9
0
Se
p-9
1
Se
p-9
2
Se
p-9
3
Se
p-9
4
Se
p-9
5
Se
p-9
6
Se
p-9
7
Se
p-9
8
Se
p-9
9
Se
p-0
0
Se
p-0
1
Se
p-0
2
Se
p-0
3
Se
p-0
4
Se
p-0
5
Se
p-0
6
Se
p-0
7
Se
p-0
8
Se
p-0
9
Se
p-1
0
Se
p-1
1
Se
p-1
2
Se
p-1
3
Se
p-1
4
Se
p-1
5
Se
p-1
6
Se
p-1
7
Se
p-1
8
Se
p-1
9
Yie
ld D
elta (
%)
Source: Bloomberg as of 03/31/20.
High Yield Bond yields represented by the yield to maturity through September 1986 and the yield to worst thereafter using the ICE BofAML High Yield Index
through 12/31/2006 and the ICE BofAML High Yield Constrained Index thereafter. Earnings Yield of the S&P 500 Index calculated as the inverse of the trailing 12
month P/E Ratio. It is not possible to invest directly in an index. All market indices are unmanaged.
Past performance is no guarantee of future results.
Average 4.42
Max: 13.57
11/08
HIGH YIELD BOND YIELD RELATIVE TO
EARNINGS YIELD OF S&P 500 INDEX
3.38
3/31/20
Min: -1.14
4/13
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Index Prices and Spreads
YE
2018
YE
20192/29/20 3/31/2020
Avg
Bid
Avg
Bid
Avg
Bid
Libor
Spread
Spread
to 4Yr
Call
Avg
Bid
Libor
Spread
Spread to
4Yr Call
Performing Loans 94.16 96.79 95.43 345 472 82.59 345 910
Leveraged Loan 100 Index 93.27 98.38 95.90 296 390 87.43 297 660
BB Index 95.29 99.65 97.83 259 320 88.57 254 609
B Index 94.62 97.70 96.25 376 489 82.95 372 963
CCC Index 85.32 82.60 81.36 562 1,264 64.09 546 2,253
Source: S&P LCD, 3/31/2020
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Emerging-Market Debt MarketReturns By Benchmark, Quality and Country as of March 31, 2020
Credit Quality (%) Weight 2019 Return YTD Return
Investment Grade 67.2 16.9 -6.3
Non-Investment Grade 32.8 10.8 -21.1
Top 10 Index Countries
by Weight (%)Weight 2019 Return YTD Return
Mexico 10.1 20.8 -18.3
China 9.4 9.6 2.0
Indonesia 9.1 18.5 -6.7
Saudi Arabia 6.3 15.5* -4.5
Turkey 5.9 14.5 -10.3
Russia 4.7 21.8 -3.3
United Arab Emirates 4.1 11.9* -4.8
Qatar 4.0 16.6* -3.3
Brazil 3.5 16.4 -4.1
Philippines 2.8 15.5 -3.0
Source: Fidelity Investments.
*Not in index full for year. Return represents market return calculated by JPMorgan outside of the EMBI Global.
For relative comparisons, index used is the JPMorgan EMBI Global Index.
Investment grade refers to debt securities with a credit rating of BBB or higher by S&P or Baa or higher by Moody’s; Non-investment grade refers to debt securities with a rating of BB
or lower by S&P or Ba or lower by Moody’s.
Past performance is no guarantee of future results.
It is not possible to invest directly in an index. All market indices are unmanaged. Not intended to represent the performance of any Fidelity fund.
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Top 5/Bottom 5 Countries
by YTD ReturnYTD Return
Lithuania 2.3
Slovakia 2.1
China 2.0
Poland 1.9
Serbia -2.1
Sri Lanka -39.5
Zambia -40.2
Lebanon -61.5
Angola -62.6
Ecuador -67.0
Portfolio ManagersFor More Information, Visit Fidelity.com
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Fidelity Floating Rate High Income Fund
Ticker: FFRHX
Portfolio
Managers:
Kevin Nielsen
Eric Mollenhauer
Fidelity New Markets Income Fund
Ticker: FNMIX
Portfolio
Managers:
Jonathan Kelly
Timothy Gill
Fidelity Capital & Income Fund
Ticker: FAGIX
Portfolio
Managers:
Mark Notkin
Brian Chang
Index DefinitionsTERM DEFINITION
Standard & Poor’s 500 Index
(S&P 500)
An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors.
The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
Bloomberg Barclays U.S.
Aggregate Bond Index
The Bloomberg Barclays U.S. Aggregate Bond Index is the most common index used to track the performance of investment grade bonds in the U.S.
The Bloomberg Barclays U.S. Aggregate Bond Index is weighted according to market capitalization, which means the securities represented in the
index are weighted according to the market size of the bond category. Treasury securities, mortgage-backed securities (MBS) foreign bonds,
government agency bonds and corporate bonds are some of the categories included in the index.
Intercontinental Exchange Bank
of America Merrill Lynch U.S.
High Yield Constrained Index
(ICE® BofAML® U.S. HY
Constrained Index)
The Intercontinental Exchange Bank of America Merrill Lynch U.S. High Yield Constrained Index is a modified market capitalization–weighted index of
US dollar-denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have a below-
investment-grade rating (based on an average of Moody’s, S&P, and Fitch). The country of risk of qualifying issuers must be an FX-G10 member, a
Western European nation, or a territory of the U.S. or a Western European nation. The FX-G10 includes all Euro members, the U.S., Japan, the UK,
Canada, Australia, New Zealand, Switzerland, Norway, and Sweden. In addition, qualifying securities must have at least one year remaining to final
maturity, a fixed coupon schedule, and at least $100 million in outstanding face value. Defaulted securities are excluded. The index contains all
securities of the Intercontinental Exchange Bank of America Merrill Lynch U.S. High Yield Index but caps issuer exposure at 2%.
Intercontinental Exchange Bank
of America Merrill Lynch U.S.
High Yield Index (ICE® BofAML®
U.S. HY Index)
The Intercontinental Exchange Bank of America Merrill Lynch U.S. High Yield Index is a modified market capitalization–weighted index of US dollar-
denominated below-investment-grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have a below-investment-
grade rating (based on an average of Moody’s, S&P, and Fitch). The country of risk of qualifying issuers must be an FX-G10 member, a Western
European nation, or a territory of the U.S. or a Western European nation. The FX-G10 includes all Euro members, the U.S., Japan, the UK, Canada,
Australia, New Zealand, Switzerland, Norway, and Sweden. In addition, qualifying securities must have at least one year remaining to final maturity, a
fixed coupon schedule, and at least $100 million in outstanding face value. Defaulted securities are excluded.
S&P/LSTA Leveraged Loan
Index
The index tracks the current outstanding balance and spread over LIBOR for fully funded term loans. The facilities included represent a broad cross
section of leveraged loans syndicated in the U.S., including dollar-denominated loans to overseas issuers.
S&P/LSTA Performing Loan
Index
The index tracks the current outstanding balance and spread over LIBOR for fully funded term loans. The facilities included represent a broad cross
section of performing leveraged loans syndicated in the U.S., including dollar-denominated loans to overseas issuers.
S&P/LSTA Leveraged Loan 100
Index
The index is a market value-weighted index designed to measure the performance of the U.S. leveraged loan market. The index consists of 100 loan
facilities drawn from a larger benchmark - the S&P/LSTA (Loan Syndications and Trading Association) Leveraged Loan Index (LLI).
S&P/LSTA Leveraged Loan BB
Index
The index tracks the current outstanding balance and spread over LIBOR for fully funded term loans. The index consists loan facilities rated BB by
S&P and is drawn from a larger benchmark - the S&P/LSTA (Loan Syndications and Trading Association) Leveraged Loan Index (LLI).
S&P/LSTA Leveraged Loan B
Index
The index tracks the current outstanding balance and spread over LIBOR for fully funded term loans. The index consists loan facilities rated B by S&P
and is drawn from a larger benchmark - the S&P/LSTA (Loan Syndications and Trading Association) Leveraged Loan Index (LLI).
S&P/LSTA Leveraged Loan CCC
Index
The index tracks the current outstanding balance and spread over LIBOR for fully funded term loans. The index consists loan facilities rated CCC by
S&P and is drawn from a larger benchmark - the S&P/LSTA (Loan Syndications and Trading Association) Leveraged Loan Index (LLI).
J.P. Morgan Emerging Markets
Bond Index Global
J.P. Morgan Emerging Markets Bond Index Global tracks total returns for the U.S. dollar-denominated debt instruments issued by Emerging Market
sovereign and quasi-sovereign entities, such as Brady bonds, loans, and Eurobonds.
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Important Information
In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall,
and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity
risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a
maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible.
Lower-quality fixed income securities involve greater risk of default or price changes due to potential changes in the credit quality of the
issuer. Floating rate loans may not be fully collateralized and therefore may decline significantly in value.
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory,
market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks,
all of which are magnified in emerging markets.
All indexes are unmanaged, and performance of the indexes includes reinvestment of dividends and interest income, unless otherwise
noted. Indexes are not illustrative of any particular investment, and it is not possible to invest directly in an index.
Third-party trademarks and service marks are the property of their respective owners. All other trademarks and service marks are the
property of FMR LLC or an affiliated company.
The Chartered Financial Analyst (CFA) designation is offered by the CFA Institute. To obtain the CFA charter, candidates must pass three
exams demonstrating their competence, integrity, and extensive knowledge in accounting, ethical and professional standards, economics,
portfolio management, and security analysis, and must also have at least four years of qualifying work experience, among other
requirements. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact
Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it
carefully.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
923207.1.0
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