HEAD-TO-HEAD: Fidelity versus Merian

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Darius McDermott, Chelsea Financial Services and Fund Calibre

Introduction

The search for steady income has once again become a prominent investment theme. The so-called “Powell pivot” in January, when the US Federal Reserve chairman indicated the prospect of lower interest rates after a series of hikes in 2018, was validated by July’s quarter point reduction, the first in 11 years.

Several fund managers have responded to a lower interest rate environment by offering investors fixed maturity products, which propose to pay an attractive yield, typically for two-to-three years, from a diverse portfolio of fixed interest securities.

There is a prevalent fear that the yields on good quality bonds, such as US Treasuries and corporate bonds with superior credit ratings, will decline further. Meanwhile, high yield, sub-investment grade bonds have limited appeal if the US and global economic activity slows down or, especially, slides into a recession.

An alternative source of income is high dividend-paying equities. Of course, stock prices are vulnerable to a weakening economy, but stable income distributions from a diversified portfolio of shares in solid companies can mitigate the pain of market (and fund value) volatility.

FSA asked Darius McDermott, managing director at Chelsea Financial Services and Fund Calibre, to compare two global equity income products: the Fidelity Global Dividend Fund and the Merian Global Equity Income Fund.

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