Investing for retirement with mutual funds Eugene Philalithis - PowerPoint PPT Presentation

Investing for retirement with mutual funds Eugene Philalithis Portfolio Manager - Multi Asset Fidelity International

Overview of retirement solutions Term funds Balanced Income Fixed with Annuities fund funds term funds protection

What is an appropriate pay-out rate? Capital remaining for a range of income levels $ income for $100 initial investment 12 140% 4% 5% 6% 8% 10% 4% 5% 6% 8% 10% Expected capital remaining for a range Expected income for $100 initial 120% 10 100% 8 of income levels investment 80% 6 60% 4 40% 2 20% 0 0% 0 5 10 15 20 0 5 10 15 20 Term (years) Term (years) Source: Fidelity International, 2019. Based on Fidelity capital market assumptions, the 50 th percentile of projected outcomes and a 60% global equity and 40% global bond portfolio. For illustrative purposes only.

The attributes of an effective retirement solution Sustainable income Risk and drawdown mitigation Flexibility to capture attractive opportunities

The income challenge Yields across asset classes 12 12 10 10 8 8 6 6 Yield (%) 4 4 2 2 0 0 -2 -2 $ cash 1 month € cash 1 month £ cash 1 month ¥ cash 1 month US 10Y gov. Germany 10Y gov. UK 10Y gov. Japan 10Y gov. US corp. bonds EMU corp. bonds UK corp bonds Japan corp. bonds EM debt US high yield EMU high yield Asian high yield US equities European equities UK equities Japan equities Asia ex Japan Equities Emerging Market Equities Loans/structured credit Infrastructure Specialist real estate (REITs) Coloured bars = current yields Pre-crisis yields (%) as of 30 June 2007 Gross estimated future distribution yields 1 Source: Refinitiv DataStream, ICE BofA Merrill Lynch. Bond indices - redemption yields, MSCI equity indices - dividend yields. Current yields as at 30 September 2019. 1 This is a rough indicator of the yields from various holdings in the FF - Global Multi Asset Income Fund and will not match actual yield levels. Yields of underlying holding are on a local currency basis.

Addressing the income challenge A global approach US Europe Asia Emerging Markets Stay truly diversified Government bonds     Investment grade corporate bonds     High yield bonds     Access via Loans   specialist Structured credit   managers Hybrid bonds   Equity income     Alternatives Source: Fidelity International, 2019. For illustrative purposes only. The portfolio managers are not restricted to the asset classes specified in the table above and have the flexibility to invest in others where appropriate - for example mortgages/ABS, hybrid bonds and reinsurance. Alternatives includes infrastructure, renewable energy, asset leasing, REITs and mortgages.

Developing sources of income Chinese onshore bond market will become the 2 nd largest in the world 450 400 350 Forecasted growth Market size (RMB trn) 300 250 200 150 100 50 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Lower Range Upper Range Source: Fidelity International, Hong Kong Exchanges and Clearing Limited, China Central Depository &Clearing Co., Ltd (CCDC), Citi, WIND, as of December 2018. Past performance is not a reliable indicator of future results.

Successful drawdown management needs a range of tools Fund Peer Group Global Equities Asian Equities QE Tapering 2016 Start of the 2018 Inflation 10Y UST Cross Since Inception Round 1 China Rout Year Volatility Brexit Concern Over 3.2% (21 Feb-16 (27 Mar 2013 - (01 May 2013 - (01 Aug 2015 - (01 Jan 2016 - (19 Jun 2016 - (01 Jan 2018 - Sept 2018 - 13 31 Dec 2018) 30 Jun 2013) 31 Oct 2015) 29 Feb 2016) 05 Jul 2016) 16 Feb 2018) Oct 2018) 0% -5% -10% -15% -20% -25% -30% -35%  Hedged GBP Reduced risky assets Reduced risky assets Equity hedges Currency management  Equity hedges Reduced interest rate sensitive assets Duration management Alternatives Source: Morningstar Direct. Performance Basis: NAV-NAV, gross income reinvested in US dollars for the A-MINCOME(G)-USD share class. Since inception of the FF Global Multi Asset Income Fund on 27 March 2013 to 31 August 2019. QE Tapering - Round 1 was from 1 May 2013 to 30 June 2013. China Rout was from 1 August 2015 to 31 October 2015. 2016 Start of the Year Volatility was from 1 January 2016 to 29 February 2016. Brexit was from 19 June 2016 to 5 July 2016. 2018 Inflation Concern was from 1 January 2018 to 16 February 2018. 10Y UST Cross Over 3.2% was from 21 September 2018 to 13 October 2018. Global equities represented by the MSCI ACWI (N) Index; Asian Equities represented by the MSCI AC Asia Pacific ex Japan (N) Index. Peer group is the average drawdown statistic of Morningstar GIF USD Moderate Allocation. Past performance is not a reliable indicator of future results.

Tools for risk mitigation: Flexible asset allocation Flexible asset allocation on a flagship income strategy Income assets Growth assets Hybrid assets 0-80% 20-100% 0-80% 100% 80% 60% 60% 50% 50% 50% 50% 60% 40% 30% 30% 25% 20% 20% 10% 0% Investment grade EM debt (hard Government bonds Cash High yield bonds EM debt high yield EM debt (local Loans/structured enhanced income) Infrastructure estate (REITs) Specialist real currency) currency) Equity (incl. bonds credit Source: Fidelity International, 2019. This is an illustration of FF - Global Multi Asset Income Fund. The Portfolio managers are not restricted to the asset classes specified in the chart above and have the flexibility to invest in others where appropriate. These are indicative ranges only and do not necessarily constitute legal limits as defined in the fund prospectus.

A typical defensive allocation 25% 20% 15% 10% 5% 0% Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Investment grade bonds - Global Investment grade bonds - US Investment grade bonds - Asia Investment grade bonds - China Government bonds - Australia Government bonds - UK Government bonds - US Government bonds - China Source: Fidelity International, 31 September 2019. These are allocations at the top multi asset overlay level.

Tools for risk mitigation: Overlays Effective risk portfolio management through overlays Equity overlay Fixed income overlay Currency overlay  Index futures  Duration management  USD exposure management  Countries  Index futures  Currency hedges  Countries  Other currency exposure  Sectors management Source: Fidelity International, 2019.

Risk and drawdown mitigation EM FX bespoke currency hedging strategy in income portfolios EM FX hedge performance EM currency basket 60% EM FX 4% Hedge closed Hedge introduced 40% basket 20% 3% 0% Hedge increased THB IDR PHP MYR TWD INR CNY KRW PKR RUB BGN CZK PLN RON HUF TRY MXN PEN CLP BRL COP ARS ILS SAR AED BHD KWD ZAR KRW HUF CZK TWD SGD THB Hedge trimmed 2% EM FX model (extract) 1% BRL CLP COP MXN CZK HUF PLN Nominal carry 0.2% -0.1% 0.0% 0.5% -0.2% -0.6% -0.3% 0% Real carry 0.1% -0.1% -0.1% 0.4% -0.4% -0.5% -0.3% Carry / vol -0.1% 0.0% -0.1% 0.1% -0.2% -0.4% -0.2% FX momentum 0.3% -0.3% -0.4% 0.4% -0.1% -0.2% -0.1% -1% APPP -1.0% -1.5% 0.4% -0.8% -1.3% -0.4% -0.2% BBoP 1.5% -1.5% -0.9% 1.2% -0.6% 0.0% 1.8% Total 0.9% -3.5% -1.1% 1.8% -2.8% -2.2% 0.7% -2% Previous 0.3% -0.5% -1.9% 1.5% -3.2% -2.7% 0.3% Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Source: Fidelity International, 2019. For illustrative purposes only. The portfolio managers are not restricted to the asset classes specified in the table above and have the flexibility to invest in others where appropriate - for example mortgages/Asset Back Securities, hybrid bonds and reinsurance. ^ABS stands for Asset Backed Securities. *MBS stands for Mortgage Backed Securities.

Capturing opportunities for capital appreciation A selected example of an Asia high yield allocation and Asia high yield credit spreads 20% 800 18% 700 16% 600 14% Allocation 500 12% 10% 400 8% 300 6% 200 4% 100 2% 0% 0 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 High yield bonds - Asia Asia HY spread Source: Fidelity International, using ICE BofA Merrill Lynch Indices (ADHY), Bloomberg, 31 September 2019. Based on FF - GMAI and for illustrative purposes only.

Identifying and building conviction in opportunities Markets research Equity & Fixed Income research  Stimulus to eventually stabilise growth  HY credit ratings improved, while remaining static for IG and versus US HY  China credit impulse vs. global manufacturing PMI  Asia leads the reduction in corporate balance sheet leverage 10,000 56 6 55 8,000 Net Debt / EBITDA 54 6,000 5 53 4,000 4 52 2,000 51 3 0 50 2 -2,000 49 -4,000 48 1 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Jan-21 China: Total Social Financing + Local Govt Bond Issuance (12m change, leading 0 12 months, RMB bn.) '11 '12 '13 '14 '15 '16 '17 '18 '19 Projection: based on year-to-date credit growth rate Asia HY Europe HY America HY Projection: based on latest three months Global Manufacturing PMI Using Markit Mfg for U.S. (SA, 50+=Expansion) Source: PBoC, JPM/Markit; Haver Analytics. Fidelity International, July 2019. Source: Fidelity International Quantitative Research, as of May 2019