We asked Fidelity's Sajiv Vaid and Kris Atkinson about the outlook for 2020 and which sectors are catching their attention
Sajiv Vaid: I'd say we are cautiously optimistic for 2020. When looking at aggregate valuations, it is hard to see a repeat of 2019-type returns. However, the ostracism of sterling investment grade (IG) credit has created value relative to US and euro investment grade. So from a global perspective, we certainly see potential for the UK to outperform its US and European counterparts.
As political uncertainty recedes, credit fundamentals will now matter more to returns and we are approaching the coming months with greater conviction around making investment decisions based on credit fundamentals.
Kris Atkinson: The utilities space is a good example of an area we like. It still trades on wider spreads relative to peers but with nationalisation fears now firmly off the table following Labour's election defeat, we expect some strong spread compression in the sector. While there are still some operational challenges, which we are monitoring, companies such as Thames Water have been trading significantly wider than the sector average but offer potential outperformance.
We are also positive on the real estate sector, particularly commercial and social housing property, as political clarity should allow market transactions to pick-up in this space. We also favour asset-backed securities as they offer stable cash flows, solid asset-backing and come with the robust covenants that are missing from straight corporate debt. Importantly, the downside protection they offer does not always mean that coupons are lower - more often than not issuers compensate creditors for the complex nature of some of the bond structures.
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