A disappointing 2017 placed pressure on Fidelity MoneyBuilder Dividend's long-term absolute return, but we continue to consider it a solid choice for investors wanting exposure to UK equities with an above-average dividend yield, sustainable income growth, and lower-than-average volatility.
The fund suffered from some unexpected stock-specific issues in 2017 that, combined with some style headwinds, have placed pressure on long-term returns. However, on balance, the fund retains a Morningstar Analyst Rating of Bronze.
Problems with holdings Provident Financial (PFG), AA Group (AA), Capita (CPI) led to disappointing returns in 2017. Further problems for Capita and headwinds for tobacco stocks tempered returns in 2018 to the end of July. The clean 'Y Inc' share class' ongoing charge is 0.67%, which we consider notably cheap relative to the ongoing charges of clean share classes for broad UK equity funds.
The nature of underperformance in 2017 was disappointing, but the fund has otherwise performed in line with our expectations given the conservative approach. We also take comfort from the fact that the fund’s manager, Michael Clark, relinquished his managerial responsibilities for Fidelity European Dividend in May 2018, allowing him to fully focus on this strategy.
A Disciplined Strategy
Clark has more than 30 years of investment experience, although much of this has been as an equity research analyst. His portfolio management experience started in 2007, shortly before he took over the management of this fund in July 2008.
While this makes him relatively new to portfolio management, he has established himself as a worthy contender in what is a competitive space. He has proved disciplined in his adherence to the strategy through various market conditions. His experience as an analyst not only gives him a good understanding of stocks and market drivers across a wide variety of sectors, it also makes him well positioned to leverage Fidelity's vast analytical resources. The fund stands as one of the higher yielding in its Morningstar Category, genuinely targeting a dividend yield that is 10% above that of the FTSE All-Share benchmark.
Sustainability of income over a market cycle is also key to Clark's approach, and thus he targets companies whose dividend can be maintained in difficult economic circumstances and grown over time. Therefore, he looks for companies whose cash flow generation is robust and that have very good coverage of their dividend payments. The relatively focused portfolio tends to be tilted to more defensive areas of the market as a result. The defensive nature of the portfolio has meant that returns have been far less volatile than the benchmark and peers, and that it has better protected capital than its peers during down equity markets while lagging in strongly rising markets – such as 2016, when the market was driven by cyclical names.
