Michael Bargholz

Fidelity Worldwide Investment today announces that Michael Bargholz has been appointed as Managing Director, Australia. Michael joined Fidelity in February as Senior Investment Director after a lengthy career with AllianceBernstein, where he was CEO and Managing Director, Australia and New Zealand. Prior roles include Managing Director of AXA Investment Management in New Zealand and Investment Strategist and Chief Economist for AXA Australia. Michael, who will report to Asia Pacific ex-Japan Managing Director Mark Talbot, takes up his new position with immediate effect.

Commenting on his appointment, Michael said, “It’s a privilege to serve in this role for an outstanding global firm and I look forward to contributing to the continued successful growth of the company in Australia.”

Mark Talbot said: “Michael will lead our growing and successful business supported by a strong management team. His knowledge and experience of the market, built up over many years, will ensure that we continue to focus on the needs of our clients as we broaden and deepen the reach of our business over the coming years.”

Fidelity’s Australian business has grown steadily in recent years and now manages client assets of over AU$11bn. The company plans to broaden its product range and to offer fixed income funds as part of its growth strategy, which is unchanged as a result of today’s announcement.

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Given that market volatility is likely to remain in 2013, amid the US ‘fiscal cliff’ issue and a continued period of austerity and deleveraging within the eurozone, this paper is particularly topical.

Fidelity’s paper finds that sovereign risk has caused a polarisation of the government bond market, creating concentration and liquidity risks among a shrinking set of over-valued safe haven assets. This has led investors to consider broader exposure to high-quality bonds beyond domestic or traditional government issuers.

Sovereigns such as Australia, Canada, and Switzerland, for example, can bring about sensible diversification and introduce currencies that reduce overall portfolio risk. Similarly, with the non-financial corporate sector in good balance sheet health, high quality investment grade corporate bonds, issued by strong multinational companies, are also a good source of safe havens.

Strategic portfolios investing across markets and bond classes can improve diversification and the risk-return profiles of portfolios by freeing up managers from traditional benchmarks. At present, many traditional market-weight bond benchmarks encourage investment in the most heavily indebted areas.

Mark Talbot, Managing Director, Asia Pacific ex-Japan at Fidelity Worldwide Investment said: “Financial markets have become less predictable.  As a result, we have observed investors’ increasing preference for less risky, or rather what are perceived to be less risky, fixed income assets.”

“However, the low or even negative yields for many safe haven bonds could mean low returns or a higher chance of capital loss for investors. As such, holding a diversified portfolio has become even more crucial in the current volatile environment. This paper is a valuable contribution to the current debate of how to improve the risk/return profiles of portfolios in these uncertain times.”

In terms of equities, investing in “quality” or companies with strong balance sheets, solid returns on equity, good free cash flow generation and low levels of leverage can offer a relative safe haven in uncertain times. Such companies can also improve their market share in times of crisis by making acquisitions at attractive prices.

Mr Talbot also observes: “Equities provide dividend income, and over the long run, compounded income is a powerful driver of total returns. Fidelity believes that having the latitude to shift portfolio exposure based on anticipated changes in the economy can allow managers to capture the best opportunities over time, making the most of our research insights.”

In turbulent times alternative investments can be used to generate return profiles that are uncorrelated to those of traditional assets, thereby offering diversification and opportunities for risk control. However, in times of real crisis, correlations can rise as negative sentiment creates general selling pressure that indiscriminately impacts almost every asset class. As such, Fidelity believes that consideration must be given to the nature of the assets held and the investment time horizon.

The paper also takes a look at the reinsurance sector and trend-following strategies as two case studies which provide interesting opportunities for investors looking at alternative return streams. Both offer the potential for attractive risk-adjusted returns but as Fidelity points out, careful manager selection is crucial.

To read the white paper, click here.

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