Fidelity launches Emerging Markets Inflation Linked Bond fund

Fidelity Worldwide Investments has launched an Emerging Markets Inflation Linked Bond fund for Andrew Weir.

The fund, launched on 16 November, sits alongside the £372m Global Inflation Linked Bond fund, run by the same manager, which launched over three years ago.

The new fund will invest in local currency government debt in Latin America, the Middle East, Eastern Europe and Asia, to take advantage of the long-term inflationary pressures in emerging markets.

Andy Howse, investment director on Fidelity's fixed income team, said: "A lot of people have used the global version to get a global inflation hedge when UK gilts are looking expensive. However, the emerging markets proposition will be more of a total return proposition than a liability hedge."

Inflation has been soaring in emerging markets over recent years with many governments taking action to stem overheating. More recently, commentators have predicted inflation is nearing its peak in places such as China and India.

However, Howse said there are many factors which will continue to drive prices higher.

"We have population and wealth expansion, continuing food price inflation, and credit creation is still extremely strong as companies and individuals lever up. On top of this we have the great developed market experiment of quantitative easing which we expect will be inflationary worldwide," he said.

"When we have had QE in the US and UK in the past it has boosted inflation in emerging markets so it makes sense for debt investors in emerging markets to have inflation-linked exposure."

The EM Inflation Linked fund has a large position in Latin America, particularly Brazil and Mexico, followed by Israel, Turkey, South Africa, Chile and Poland. The benchmark is the Barclays Emerging Market Tradable Inflation Linked Index.

Howse added the fund will also participate in the appreciating currencies.

The fund will be registered for sale in the UK next year but is aimed at sophisticated investors. Minimum investment for ‘Y' share classes is $1m.

Weir's Global Inflation Linked Bond fund has outperformed the Global Bond sector average by 1.7% over one year, and 1.8% over three years, according to Morningstar.