Over the past several years, the balanced funds at Fidelity have improved dramatically. They are now run much like a fund of funds, investing in underlying pools run by some of Fidelity’s top managers.
The fund’s asset mix is managed by Geoff Stein, who was recently joined by David Wolf, formerly of the Bank of Canada. They monitor the macro outlook, market fundamentals, and investor sentiment, and adjust the asset mixes of the portfolios accordingly. It is rare to see the asset mix stray too far from target, but it does occasionally happen when they have strong conviction in an idea or theme.
For this fund, the target asset mix is 30% equity and 70% fixed income. There is some flexibility around this mix, where they can go +/- 20% from the target. At the end of November, it was pretty much on target, with 29% in equities, 63% in fixed income, and 6.5% in cash.
In addition to the more traditional asset classes, they have the ability to tap into Fidelity’s massive global team to access to a wide range of other strategies including high yield, convertible debt, and floating rate notes.
Performance across all time periods has been top quartile. For the three years ending December 31, it gained an annualized 7.85%, handily outpacing both the index and its peer group.
Since Mr. Stein took over in 2011, volatility has been average, however the downside protection has been excellent. For the past three years, the fund has only experienced about half the drop in the benchmark.
Going forward, the managers favour U.S. equities based on the economy’s slow and steady upward trend. They are worried that global demand for commodities will act as a headwind for Canadian equities.
Within the fixed income sleeve, they have some exposure to U.S. high yield and U.S. convertible bonds, which are expected to hold up better in a rising rate environment, despite the increased credit risk.
On balance, I really like this fund. My biggest worry is that with more than 60% invested in fixed income investments, of which the vast majority is investment grade, repeating past performance will be a challenge with upward pressure on rates. However, with the excellent underlying management teams, combined with the strong asset allocation oversight, I expect this fund to outpace many of its peers on a risk adjusted basis. Still, I would likely lean more towards the Fidelity Monthly Income Fund over this offering because of its higher equity weight.