The Emerging Marketfixed income opportunityMadrid Perspectives Event17 January 2013                                       ...
Evolution of the EM Debt asset classToday: A strategic component of asset allocation Emerging market         Hard currency...
EM Debt and currency markets at a glance The best-performing asset class of the last decade on an absolute and risk-adjus...
Sovereigns have recently issued predominantly in thelocal market Sovereigns now issue more frequently in the domestic mar...
Corporates issue more frequently in hard currencies New issue market in the external EM market has been dominated by corp...
If you like EM equities, you should love EM debt... EM external debt was the best-performing asset class of the last 18 y...
Higher quality  higher returns  higher inflows Continued strong inflows into EM dedicated funds with inflows of US$32.6...
Where do we go from here? EM growth momentum is picking up. PMI data supportive going forward Alpha is portable in EM. T...
How much more can spreads tighten? EM spreads over treasuries are close to pre-global financial crisis levels Appetite f...
Key risks in EM Debt Heavy refinancing needs in H1 2014. Unintended consequences of QE with increasing inflation and ass...
EM Debt:Three opportunity sets                                        USD EM Hard Currency              EM Local Currency ...
Appendix12
Steve EllisEM Portfolio Manager                                              Investment Experience                        ...
Dedicated EM sovereign research analyst,trader and Asian PM Andressa Tezine                               Paul Greer      ...
EM Debt coverage across the fixed income team                                                                             ...
EM DebtHow we add valueSummary:The EM team focuses on the management of emerging market external, local and corporate bon...
Sources of potential alphaExternal, local, FX, corporatesExternal debt                        Local rates                 ...
Overview of our EM Bond investment process                                          Top-down analysis                     ...
FF Emerging Market Debt Fund PerformanceAnnual Performance in %                                                           ...
EM credit quality has been improving EM have proven resilient as the Euro debt crisis has not resulted in any significant...
Risk-return trade-off is most favourable in Credit MarketsSource: Fidelity Worldwide Investment, Credit Suisse.21
Default risks in Emerging Markets EM corporate default rate bottomed at 0.74% in September 2011 but has since increased t...
1YR EMBIG total return scenariosBase case (moderate growth upturn)                            EMBIG yield (as of 14 Nov)  ...
Objectives     Mission statement:     “Quantitative screening of Emerging Market     data to identify alpha opportunities ...
FIL’s EM InterfaceHeatMap and Scorecards are networked-based. Available to all in FIL.               All models are       ...
EM Investment ApproachHeatMaps: Quant screen to rank countries Sovereign “HeatMaps” are utilised to determine the creditw...
Summary of Investment Process FIL’s quant models have been built with the purpose of trying to express a view on an EM co...
FF Emerging Market Debt FundCurrent investment guidelines At least two-thirds of portfolio in dollar denominated sovereig...
FF Emerging Market Debt Fund :Portfolio CharacteristicsPortfolio Characteristics as 31/08/2012              Risk/Return Ch...
Country allocationSource: FIL Ltd 31/12/201230
FF Emerging Market Debt FundTop 10 active o/w holdings Description                        Relative Risk Weight (CHILE) Rep...
Important informationThis information is for Investment Professionals only and should not be relied upon by private invest...
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The Emerging Market fixed income opportunity

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Presentación The Emerging Market fixed income opportunity en Madrid por Steve Ellis, Gestor de Renta Fija de Fidelity

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The Emerging Market fixed income opportunity

  1. 1. The Emerging Marketfixed income opportunityMadrid Perspectives Event17 January 2013 Steve Ellis Portfolio Manager Fixed IncomeThis presentation is for investment professionals only and should not be relied upon by private investors.
  2. 2. Evolution of the EM Debt asset classToday: A strategic component of asset allocation Emerging market Hard currency Rise of the Corporate issuance Sovereign local Domestic yield Hard currency restructuring yield curve EM corporate exceeds sovereign market issuance curve extension debt buybacks(Brady Bond Plan) development debt market issuance EM DEBT MARKET 1990s 2000sWhy invest in emerging market bonds? EM bonds have demonstrated a resilience and passed a second stress test as the Eurozone crisis has not resulted in a deterioration of EM fundamentals. EM countries account for almost 72% of the contribution to global growth and growing at four times that of DMs. EM fixed income asset class continues to grow with total EM debt outstanding across sovereign, corporates, and local markets approaching $8 trillion EM is attractive to DM markets on a risk-adjusted basis with EM local yields remaining attractive to DM yields, offering over 4% pick-up on a relative basis in nominal terms and 2.5% on a real basis to comparable government bonds Who invests in emerging market bonds? Pension funds: $1.7 trillion Insurance companies: $2.7 trillion Sovereign Wealth Funds: $4.3 trillionSource: FMR, BofA Merrill Lynch, September 20122
  3. 3. EM Debt and currency markets at a glance The best-performing asset class of the last decade on an absolute and risk-adjusted basis A beneficiary of the search for yield among investors and a diversification away from debt-laden developed markets A way to benefit from emerging economic growth without the higher volatility levels associated with equity investment Stable government policies have combined with well-managed economic growth to drive the performance of emerging market debt This is an ongoing story: emerging market fundamentals are forecast to go on improving, while developed-world governments face slower growth and large deficits Frontier markets offer the opportunity to benefit from genuine ‘emergence’ - when some of the best capital gains can be made However, most of the return from emerging market debt comes from income/carry3
  4. 4. Sovereigns have recently issued predominantly in thelocal market Sovereigns now issue more frequently in the domestic market (87% of total sovereign issuance). With local term structures shifting lower, governments have more incentive to issue locally (FX risk is borne by investors and not by the government). Local pension funds’ AUM (US$ 1.7trn) and insurance companies’ AUM (US$ 2.7trn) haven risen dramatically which causes a natural bid for local currency debt. Net issuance in local currency debt in 2012 has been low.GBI-EM gross issuance (US$ bn)Source: Fidelity Worldwide Investment, Bond Radar, J.P. Morgan, official sources.4
  5. 5. Corporates issue more frequently in hard currencies New issue market in the external EM market has been dominated by corporate supply Share of corporate issuance in hard currencies is almost back to 2007 peak levels Corporate issuance is equally split across regions: Asia (41%), EMEA (29%) and LATAM (30%) Total outstanding EM corporate debt stands at US$2.9trn of which approximately one third is in investable hard currency bondsHard currency issuance (US$ bn)Source: Fidelity Worldwide Investment, Bond Radar, J.P. Morgan, official sources, Sept 20125
  6. 6. If you like EM equities, you should love EM debt... EM external debt was the best-performing asset class of the last 18 years on an absolute and risk- adjusted basis. EM Hard Currency debt has offered better risk-adjusted returns than most DM asset classes over the last three years. EM local markets and corporates have experienced higher volatility due to FX moves and corporate defaults, but still have impressive Sharpe Ratios.Cumulative performance (rebased 31.12.1993=100) Sharpe RatiosSource: Fidelity Worldwide Investment, Datastream, as at 31/07/2012. Rebased to31.12.93 – first date of availability for JPM EMBIG data. US listed property is the Source: Fidelity Worldwide Investment, J.P. Morgan,FTSE/NAREIT EQUITY REITS $ Index. 31/07/20126
  7. 7. Higher quality  higher returns  higher inflows Continued strong inflows into EM dedicated funds with inflows of US$32.6bn YTD. Hard currency funds experienced the largest inflows with ~61% of total inflows YTD. Flows into global EM funds are >90% of total flows as compared to regional dedicated funds.EMBI Global vs EM Hard Currency Fund EM Fund Flows (US$ bn)Flows (US$ bn) Source: Fidelity Worldwide Investment,Source: Fidelity Worldwide Investment, J.P. Morgan, December 2012 Credit Suisse, EPFR Global, December 20127
  8. 8. Where do we go from here? EM growth momentum is picking up. PMI data supportive going forward Alpha is portable in EM. Three alpha sources: Credit, Rates and FX FX looks like an attractive alpha source for 2013 with PMIs now ticking higher EM FX has underperformed other EM assets due to the weak global growth backdrop and central bank currency warsEM PMIs now ticking higher High correlation between EMFX returns and global PMIs Source: Fidelity Worldwide Investment, Bloomberg,Source: Fidelity Worldwide Investment, Bloomberg, December 2012 J.P. Morgan, December 20128
  9. 9. How much more can spreads tighten? EM spreads over treasuries are close to pre-global financial crisis levels Appetite for yield, and the lack of spread products due to QE likely to encourage further spread tightening. Investors likely to be pushed further down the risk spectrum Some obvious threats are: default rates rising / pick up in volatility caused by some tail risk event. But as we shall see, there are other risksIndex spreads over UST (bps)Source: Fidelity Worldwide Investment, Bloomberg, December 20129
  10. 10. Key risks in EM Debt Heavy refinancing needs in H1 2014. Unintended consequences of QE with increasing inflation and asset bubbles. Increase in UST yields from record lows (Great Rotation).EM HY refinancing needs (US$ bn) Inflation projections, CPI (%)Source: Fidelity Worldwide Investment, ING, Oct 2012. Source: Fidelity Worldwide Investment, Credit Suisse.10
  11. 11. EM Debt:Three opportunity sets USD EM Hard Currency EM Local Currency EM Corporate Market Capitalization $579* $1535* $265* (billion$) *JP Morgan EMBI Global *JP Morgan GBI-EM Broad Diversified *JP Morgan CEMBI Broad Diversified Investability Highly investable Wide variability: from highly Still very much a primary investable to fully market but investablility uninvestable continues to grow as issuer base broadens Foreign Exchange Risk No Yes No # of Issuers 55 16 372 Quality BBB- A- BBB Analytical Approach Top down & Bottom Up Top Down Bottom-Up FF Emerging Market Debt Fund FF Emerging Market Inflation- Launched January 2006 linked Bond Fund AUM: $1178m Launched November 2011 Fidelity fund range: Managed by Steve Ellis AUM: $110m Managed by Andy Weir Two existing funds Two proposed new funds FF Emerging Market Local FF Emerging Market Corporate Currency Debt Fund Debt Fund Proposed launch March 2013 Proposed launch March 2013 Managed by Steve Ellis Managed by Andrei GorodilovSource: JP Morgan, 31/12/2012FIL Limited fund AUM as at 30/11/201211
  12. 12. Appendix12
  13. 13. Steve EllisEM Portfolio Manager Investment Experience Commence managing FF-Emerging Market Debt Fund November 5, 2012 Goldman Sachs Asset Management Emerging Markets Local Currency Debt and FX, 2006– 2012 Portfolio Manager Lehman Brothers 2001-2006 Steve Ellis Global Head of Local Market Strategy Fund Manager Based in London Investment Experience ING Barings 1997-2001 19 years Global Research, Fixed Income Strategist Education Bristol University, BSc (Hons) Economics NatWest 1993-1997 EconomistSource: FIL Limited, November 2012* Local Currency EM Bond pilot launched 3rd September 201213
  14. 14. Dedicated EM sovereign research analyst,trader and Asian PM Andressa Tezine Paul Greer Eric Wong EM Research Analyst EM Trader Portfolio Manager • Since 2005, Andressa worked for • Prior to joining Fidelity Paul was at • Prior to joining Fidelity Paul was Portfolio Pinebridge Investments as the Head of Pinebridge Investments since 2006 as Manager at BlackRock where he Research for the Emerging markets Fixed Head of Fixed Income and Listed Equity managed over $18 billion of emerging Income Trading market bonds since 2002. • From 1996-2005 Andressa worked for • Prior to that Paul worked at the Bank of • He was responsible for generating alpha ABN AMRO in Sao Paulo (1996-2005), Ireland Global Markets in Dublin in by country selection, curve relative value Brazil as a Treasury Senior Economist Wholesale FX and Money Market and new issues participation operations since 2001. • From 1995-1996 she worked at Banco • Developed and launched exchange traded Itamorati as an Economics Analyst • He traded credit, rates and was a principal funds for emerging market corporates and dealer emerging market high yield • She started her career in the Treasury department at Unibanco (1993-1995). • He gained his FSA Securities and • Collaborated with research desk to Financial Derivatives qualification in 2003. enhance existing investment models and • Education: developed new trading strategies to • Education – Universidade Sao Paulo, Economics provide high capacity alpha to portfolios. – The Queen’s University of Belfast – Universitat Pompeu Fabre in • Education Barcelona , MSc in Economics & – Bachelors degree with Honours – BA, Economics with minors in Management – 2.1 Electrical and Electronic Computer Science & Spanish Engineering – Stanford UniversitySource: FIL Limited, November 201214
  15. 15. EM Debt coverage across the fixed income team Andrew Wells Global CIO of Fixed Income & ISG Andy Howse Juan Landazabal Olivier Szwarcberg Sabita Prakash David Buckle Rob Middleton Team Leader - Portfolio Managers & European Product Head of Trading Head of Credit & Structured Research Head of Asian Fixed Income Head of Quantitative Research Head of FI Investment Operations Portfolio Investment Trading Credit & Structured Asia – Fixed Income Quantitative Investment Management Directors Research Research Operations Steve Ellis Andrew Falco Kristian Atkinson Fred Kam Marton Huebler Paul Wood Portfolio Manager Investment Director -TBH Senior Trader Senior Credit Analyst Senior Credit Analyst Quantitative Analyst Head of Trading & Research Operations Ian Fishwick Kevin Loo Naomi Haynes Gita Bal Katsumi Ishibashi Claudio Ferrarese Sifa Clark Portfolio Manager Product Manager Senior Trader Senior Credit Analyst Senior Credit Analyst Quantitative Analyst Trading and Data Projects Tim Foster Stuart Rumble Duncan Fraser Dierk Brandenburg Torquil Macleod Liam Kelly Gary Willis Portfolio Manager Product Manager Senior Trader Senior Credit Analyst Senior Credit Analyst Quantitative Research Associate Trade Support Andrei Gorodilov Aran Gordon Lars Salmon Stuart Collings Nitesh Kathuria Arezou Philsouph Jane O’Brien Portfolio Manager Product Manager Senior Trader Senior Credit Analyst Research Associate Quantitative Developer Research Support Peter Khan Constance de Wavrin Andrew Martin John Davy Dylan Ngai Joe Hanmer Kathryn Barrow Portfolio Manager Product Manager Trader Senior Credit Analyst Research Associate Investment Graduate Research Support Rick Patel David Lagrange Robbie Taylor Michael Dolan Nishan Pradhan Oliver Fawcett Portfolio Manager Competitor Fund Analyst Trader Senior Credit Analyst Research Associate Head of PMS David Simner Tobias Bracey Paul Greer Martin Dropkin Fan Zhang Quentin Lafosse Portfolio Manager Product Specialist Trader Senior Credit Analyst Research Associate PMS Analyst Jeremy Church Paola Delgado Richard Meachin Tiago Parente Jenny Lee (Maternity Leave) Christopher Ellinger Assistant Portfolio Manager Product Specialist Graduate Junior Trader Senior Credit Analyst Credit Analyst PMS Analyst Rahul Kathuria Ario Emami-Nejad Federico Wynne Asia-Investment Directors Katie Tutcher Product Specialist Junior Trader Credit Analyst PMS AnalystPortfolio Management Namrata Nanda Sanjeev Desai Andressa Tezine Gregor Carle Tim Craigen Product Specialist Trade Support Sovereign Analyst Investment Director Head of Analytics Ian Spreadbury Tristan Cooper Trista Cheung Konstantinos Korrovesis Portfolio Manager Sovereign Analyst Associate Investment Director Senior Analytics Specialist Andy Weir Jonathan Neve Asia Richard Homer Portfolio Manager Credit Research Associate Investment Operations Analytics Specialist Investment professionals Bryan Collins Simoni Mittal Maria Abbonizio Camille Florentin Portfolio Manager with full or partial Credit Research Associate Head of Investment Operations Junior Analytics Specialist EM debt responsibility Eric Wong Rebecca Motta Henry Mak Ashley-Anne Berry Portfolio Manager Credit Research Associate Senior Manager, Investment Services Change Management Junior Analytics Specialist Patrick Haller Asia - Trading Tara Lally Farshad Safaei KEY: London Based Investment Graduate Change Manager Application Developer Hong Kong Based India Based Hiroki Hashimoto Freddy Wong Sabina Awan Business Change Investment Graduate Trader Senior Change Analyst Management Tokyo Based Those in bold report Stephen Bramley Tae Ho Ryu Jack Adamson Virginia Galloway directly to A Wells Investment Graduate Associate Trader Business Management Graduate Business Change Manager Quan Yuan Jonathan Kok Investment Graduate FI Associate Source: FIL Limited, 01/01/2013 Jasmina Koleva Credit Research Associate 15
  16. 16. EM DebtHow we add valueSummary:The EM team focuses on the management of emerging market external, local and corporate bondsand currencies.Leveraging the broader research resources available throughout Fidelity Worldwide InvestmentThey seek to generate alpha from solid credits with strong fundamentals.The investment philosophy reflects the fact that alpha is portable so they construct optimal portfolioswith a mix of emerging market instruments that reflects Fidelity Worldwide Investment’s view onemerging markets.This is achieved through a combination of fundamental and quantitative modeling techniques that arethe backbone of the investment process Portfolio Analytics Client Guidelines Portfolio Managers Quantitative  Portfolio  Portfolio  Sovereign Modeling Management Management Currency TradingSource: FIL Limited, November 201216
  17. 17. Sources of potential alphaExternal, local, FX, corporatesExternal debt Local rates FX CorporatesEvaluate country balance Inter-country rate levels & FX valuation Fundamentalsheets yield curve research/corporate marketAre we being adequately Identifying value in local debt Short term- Fundamental analysis-compensated? Country /risk selection Investor positioning Credit analysisAnalyse- Value Sentiment Corporate governanceEconomic growth FX rates Risk appetite Technical analysis-Balance of payments FX risk Medium term- LiquidityPolitical environment Security’s fair value Growth Yield curveGovernment transparency Research inflation breakeven vs. Monetary Sovereign analysis-Financial system inflation Fiscal Business environmentFiscal policy Evaluate yield curve Current account Regulatory environmentLevel of debt/composition Capital account FX controlsSecurity selection- Long term-Relative value PPP Productivity Trade DemographicsSource: FIL Limited, November 201217
  18. 18. Overview of our EM Bond investment process Top-down analysis to screen countries’ creditworthiness EMD Macro HeatMap Local Rates External Debt Local FX Scorecard Scorecard Scorecard Bottom-up analysis using quant tools to rank important drivers of alpha The EMD team at FIL are fundamental investment managers, but use “HeatMaps” and “Scorecards” to assist in data screening and portfolio construction. Stage 1: The HeatMap ranks countries’ creditworthiness, using factors such as fiscal solvency, balance of payments and growth dynamics. Stage 2: The Scorecards then help the EMD team decide how best to express a particular view on a country: i.e. via FX, duration, or external debt (or a mixture). The scorecards are a powerful way of combining valuation metrics and trading rules to identify alpha opportunities in EM.Source: FIL Limited, 30/11/201218
  19. 19. FF Emerging Market Debt Fund PerformanceAnnual Performance in % Performance (%) as of October 31, 2012 Fidelity Funds JP Morgan Active Emerging Market Debt EMBI Global Return2007 4.6 6.3 (1.7)2008 -19.5 -10.9 (8.7)2009 45.6 28.2 17.42010 10.8 12.0 (1.2)2011 3.1 8.5 (5.4)YTD 2012 16.1 15.7 0.5 Ranking in Global Emerging Bond** Universe 1 year 26 of 117 1st quartile 3 years 45 of 69 3rd quartile 5 years 14 of 60 1st quartileSource: FIL Limited as of 31/10/2012. Performance is gross and net of fees and in US Dollar terms. Calculation basis is NAV-NAV withgross income reinvested.**Source: Morningstar *Inception 1/23/20061919
  20. 20. EM credit quality has been improving EM have proven resilient as the Euro debt crisis has not resulted in any significant deterioration of EM fundamentals. Average public debt-to-GDP ratio at 34%, and fiscal deficits currently average only 2.2% of GDP, broadly unchanged from 2007. EMBI universe is predominantly Investment Grade (63%) and the average rating has stabilised at Baa2/BBB. EM sovereigns have experienced 194 upgrades (vs.154 downgrades) across 54 countries by the three rating agencies since the start of the global financial crisis. DM sovereigns on the other hand experienced only 15 upgrades (vs.132 downgrades) during the same period.% of EMBIG market capitalization by ratings bucketSource: Fidelity Worldwide Investment, J.P. Morgan.20
  21. 21. Risk-return trade-off is most favourable in Credit MarketsSource: Fidelity Worldwide Investment, Credit Suisse.21
  22. 22. Default risks in Emerging Markets EM corporate default rate bottomed at 0.74% in September 2011 but has since increased to 4.09%. Total EM default rates remained below 3%. EM default cycles have been decreasing over the past decade in magnitude and length, but timing the default cycle remains important.Speculative grade corporate and total EM default rates (%) In the 2001-2003 cycle, EM speculative grade The EM corporate default rate defaults peaked at 30.85% with US$41bn of bottomed at 0.74% in September ‘11 defaults recorded over the period. versus 2.08% in November ‘10. But, it has since increased to 4.09% in Oct ’12. The more recent 2008/09 cycle witnessed US$29bn worth of corporate defaults. Given the growth of the outstanding corporate bond market the default rate peaked at 13.87%.Source: Fidelity Worldwide Investment, ING.22
  23. 23. 1YR EMBIG total return scenariosBase case (moderate growth upturn) EMBIG yield (as of 14 Nov) 4.68% Losses from defaults per yr ‐0.5% Probability 70% EMBIG Spread change (%) ‐20% from 302 to 242 (DTS= 1687 ) 10y UST yields (bp change) 15 from 1.59 to 1.74 (IR dur= 7.1 ) Expected 1y total return  % 6.5%Bear case (fiscal cliff / EU implosion) EMBIG yield (as of 14 Nov) 4.68% Losses from defaults per yr ‐2.0% Probability 15% EMBIG Spread change (%) 50% from 302 to 453 (DTS= 1687 ) 10y UST yields (bp change) ‐50 from 1.59 to 1.09 (IR dur= 7.1 ) Expected 1y total return  % ‐2.2%Bull case (QE continues / EM allocations increase) EMBIG yield (as of 14 Nov) 4.68% Losses from defaults per yr ‐0.5% Probability 15% EMBIG Spread change (%) ‐50% from 302 to 151 (DTS= 1687 ) 10y UST yields (bp change) 10 from 1.59 to 1.69 (IR dur= 7.1 ) Expected 1y total return  % 11.9% 1y EMBIG weighted expected total return 6.0%Source: Fidelity Worldwide Investment.23
  24. 24. Objectives Mission statement: “Quantitative screening of Emerging Market data to identify alpha opportunities in order to assist fundamental portfolio construction”24
  25. 25. FIL’s EM InterfaceHeatMap and Scorecards are networked-based. Available to all in FIL. All models are available at the click of a button25
  26. 26. EM Investment ApproachHeatMaps: Quant screen to rank countries Sovereign “HeatMaps” are utilised to determine the creditworthiness of individual countries This is based on the analysis of specific factors and sub-factors – (e.g. growth, inflation, fiscal, balance of payments, banking and credit and the political environment)Source: FIL August, 201226
  27. 27. Summary of Investment Process FIL’s quant models have been built with the purpose of trying to express a view on an EM country in the most optimal way. FIL EM team start by scanning the HeatMap, and looks for countries with solid fundamentals. The team then uses the scorecards to identify the best way to express a view: FX / rates / external debt. The quant models are used by other Portfolio Managers within FIL. There are no silos at FIL!27
  28. 28. FF Emerging Market Debt FundCurrent investment guidelines At least two-thirds of portfolio in dollar denominated sovereign/quasi sovereign Interest Rate Duration: Within +/- 20% of benchmark duration Stand alone maximum allocations: – Corporate bonds: 20% – Emerging Market Equity: 20% – Local Currency Debt: 20% – Combination of all three: not to exceed one-third of portfolio Maximum Country overweight: 10%; large countries will typically not have zero allocation28
  29. 29. FF Emerging Market Debt Fund :Portfolio CharacteristicsPortfolio Characteristics as 31/08/2012 Risk/Return Characteristics as 31/12/2012 Fund Index 3 YrDuration 7.08 7.16 Beta 1.11Yield to Worst (YTW) 4.10 3.81 Alpha ‐0.28Ave. Maturity 13.04 12.56 R‐Squared  0.86Ave. Coupon 6.32 6.66 Annualised Standard Deviation 7.83Spread Duration 7.23 7.33 Sharpe Ratio ‐ Portfolio 1.33OAS 273 257 Sharpe Ratio‐Comparative Benchmark  1.89DTS 1612 1602 Annualised Tracking Error  3.00Ave. Bond Price 116.91 118.67 Information Ratio  ‐0.74Number of Holdings 224 330Number of Issuers 111 93Average Rating BB+ BBSource: FIL Limited, 31/12/2012,29 29
  30. 30. Country allocationSource: FIL Ltd 31/12/201230
  31. 31. FF Emerging Market Debt FundTop 10 active o/w holdings Description Relative Risk Weight (CHILE) Republic of Chile 3.73% (PDVSA) Petroleos De Venezuela S 1.58% (ADGB) Emirate of Abu Dhabi 1.58% (T) United States of America 1.36% (WIT) United States of America 1.10% (SLOVEN) Republic of Slovenia 0.83% (ARGBON) Argentine Republic 0.83% (BHRAIN) Kingdom of Bahrain 0.78% (SLOVAK) Slovak Republic 0.73% (ALRSRU) Alrosa Finance Sa 0.67%Source: FIL Ltd, 31/12/201231
  32. 32. Important informationThis information is for Investment Professionals only and should not be relied upon by private investors. It must not be reproduced or circulated without prior permission. Thiscommunication is not directed at, and must not be acted upon by persons inside the United Kingdom or the United States and is otherwise only directed at persons residing injurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Research professionals include both analysts and associates.Fidelity/Fidelity Worldwide Investment means FIL Limited and its subsidiary companies. Unless otherwise stated, all views are those of Fidelity.Top security holdings are thosesecurities in which the largest percentage of the fund’s total assets are invested. Holdings in different securities issued by the same company are listed separately and any exposureachieved by derivatives is not shown. This means that the data may not always represent the total exposure of the portfolio to any given company. A full list of holdings, includingderivatives is available on request. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included forthe purposes of illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. The research andanalysis used in this documentation is gathered by Fidelity for its use as an investment manager and may have already been acted upon for its own purposes. Fidelity only offersinformation on its own products and services and does not provide investment advice based on individual circumstances. Fidelity, Fidelity Worldwide Investment, the FidelityWorldwide Investment logo and F symbol are trademarks of FIL Limited. Fidelity Funds is an open-ended investment company established in Luxembourg with different classes ofshares. Reference to FF before a fund name refers to Fidelity Funds. Holdings can vary from those in the index quoted. For this reason the comparison index is used for referenceonly. This document may not be reproduced or circulated without prior permission. No statements or representations made in this document are legally binding on Fidelity or therecipient. Past performance is not a reliable indicator of future results. The value of investments can go down as well as up and investors may not get back the amount invested.For funds that invest in overseas markets, changes in currency exchange rates may affect the value of an investment. Foreign exchange transactions may be effected on an armslength basis by or through Fidelity companies from which a benefit may be derived by such companies. The value of bonds is influenced by movements in interest rates andbond yields. If interest rates and so bond yields rise, bond prices tend to fall, and vice versa. The price of bonds with a longer lifetime until maturity are generally more sensitive tointerest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity.Default risk may therefore vary between different government issuers as well as between different corporate issuers. The investment policy of this fund means it can be more than35% invested in Government and public securities. These can be issued or guaranteed by other countries and Governments. For a full list please refer to the funds prospectus.Werecommend that you obtain detailed information before taking any investment decision. Investments should be made on the basis of the current prospectus, which is available alongwith the current annual and semi-annual reports free of charge from our distributors, from our European Service Centre in Luxembourg;For the purposes of distribution in Spain,Fidelity Funds is registered, with the CNMV Register of Foreign Collective Investment Schemes under registration number 124, where complete information is available from FidelityFunds authorised distributors. The purchase of or subscription for shares in Fidelity Funds shall be made on the basis of the Key Investor Information Document (KIIDS) thatinvestors shall receive in advance. The Key Investor Information Document (KIIDS) is available free of charge and for inspection at the offices of locally authorised distributors as wellas at the CNMV ; Issued by FIL Investments International (FSA registered number 122170) a firm authorised and regulated by the Financial Services Authority. FIL InvestmentsInternational is a member of the Fidelity Worldwide Investment group of companies and is registered in England and Wales under the company number 1448245. The registeredoffice of the company is Oakhill House, 130 Tonbridge Road, Hildenborough, Tonbridge, Kent TN11 9DZ, United Kingdom. Fidelity Worldwide Investment’s VAT identification numberis 395 3090 35.FIPM 38332

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