Fidelity Emerging Mkt Dbt E-Acc-EUR

Analyst Report
Morningstar's Take
|21/06/2023

by Arvind Subramanian
Fidelity Emerging Market Debt will see an upcoming reshuffle in its portfolio manager lineup. The change will see lead manager Eric Wong step back to a co-portfolio manager role, while Paul Greer, a current comanager, will step up as lead portfolio manager. The change will be effective 1 July 2023. Marton Huebler, another comanager in the fund, will continue in his current role.

Hong Kong-based Wong has comanaged Fidelity Emerging Market Debt since November 2012, before he took the lead in January 2019 following predecessor Steve Ellis’ appointment as global fixed-income CIO. Wong joined Fidelity in 2012 and has over 20 years of investment experience, 13 of them focused on managing emerging-markets debt strategies, particularly on Asia. Wong is an astute investor, and his presence as lead portfolio manager was key to our conviction.

According to Fidelity, the change is to have Wong focus his efforts on corporate debt, while Greer focuses on sovereign debt within emerging markets. Wong will continue as the lead manager for Fidelity Emerging Market Corporate Debt, a hard-currency emerging-markets corporate-bond-focused strategy, supported by Greer and Huebler as comanagers. We are not particularly convinced since Wong had only recently relinquished lead portfolio manager duties at Fidelity Asian Bond Fund on 1 January 2022 to focus on the emerging-markets debt franchise, and Wong’s diminishing responsibilities is an area to watch.

Greer, who has been supporting the strategy since January 2018, first as an assistant portfolio manager and then as a co-portfolio manager since October 2018, will be assuming lead manager duties from Wong. Greer is based in London and joined Fidelity in 2012. In terms of skill sets, Greer has been the Latin America expert for the fund, Wong the Asia expert, and Huebler a quant-minded investor who also covers Latin America debt. Greer’s first stint as a lead portfolio manager has been with the Fidelity Emerging Market Local Currency Debt strategy, which he has managed since January 2019, delivering benchmark- and peer-beating results.

Overall, our previous People rating of Above Average was centered around our conviction on Wong as lead portfolio manager for this strategy and his rich investing experience in emerging markets, especially in Asia. While Greer’s involvement here since 2018 provides some comfort, his portfolio management experience compares less favourably to Wong's, and we have yet to gain confidence in him as a lead portfolio manager here. As such, we place Fidelity Emerging Market Debt Under Review, and we will arrange a meeting with the portfolio management team to provide a more comprehensive update in due course.

 
The upcoming reshuffle in the portfolio manager lineup sees the elevation of relatively unproven Paul Greer as lead manager. Combined with the move to a more benchmark-aware investment process, this reduces our conviction in the strategy. This warrants a downgrade in the People Pillar rating to Average, earning the strategy a Morningstar Medalist Rating of Neutral across all share classes.

Effective July 1, 2023, the strategy will see lead manager Eric Wong stepping back to a co-portfolio manager role, while Paul Greer, a current comanager, will step up as lead portfolio manager. Greer, who has been associated with the strategy since January 2018, has a macro-level focus with expertise in sovereign and quasi-sovereign issuers in Latin America. However, unlike Wong, Greer has no prior experience in leading hard currency strategies. Accordingly, we have yet to gain conviction in Greer’s capabilities.

The manager lineup reshuffle comes on the heels of disappointing returns in 2022 when the fund was severely hurt by its contrarian bets on Belarus, Ukraine, and China property, and an overweighting in credit beta. This dented what had otherwise been a solid record since the start of Wong’s tenure in December 2012.

In this context, and in addition to the manager change, the group has decided to implement several risk-management measures including tighter position sizing, lower high-yield allocation, tighter range for credit beta, and lower exposure to off-benchmark corporate debt. Such initiatives around risk management appear prudent, but it remains to be seen how they will be implemented in practice, and the effect they will have on the fund’s ability to generate alpha over the longer term.
 
Morningstar Medalist Rating™Manager and investment process changes warrant caution.
To find out how Morningstar rates a fund click here.
Morningstar Pillars
PeopleAverage
ParentAbove Average
ProcessAverage
 
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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