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Analysis: After the March and April departures of long-time managers Bob Swanson and Brandon Snow, the management team of the Fidelity Canadian Asset Allocation Fund underwent a significant restructuring. Geoffrey Stein and Derek Young stepped into the lead manager role and it took the responsibility of leading Fidelity’s fixed income and equity teams. In the simplest of terms, this fund is essentially a fund of fund, where the lead managers will set the asset mix of the Fidelity Canadian Asset Allocation Fund by adjusting the mix of a number of sub portfolios
The managers will use a tactical approach to asset allocation and will invest in a mix of Canadian equity, fixed income and money market securities. They will also invest tactically in foreign securities to take advantage of market opportunities as they arise. The neutral asset mix of the fund is 65% in equities, 30% bonds, with the balance in cash. Based on market conditions, the managers will adjust the fund asset mix to provide the mix which they feel will generate the best risk adjusted return for investors. Typically, the asset mix changes are done on a gradual basis, rather than suddenly.
It is much too early to make any type of definitive judgment on the performance of the new management team. Since taking over, performance has been in the middle of the pack, finishing second or third quartile. For the six-month period ended November 30, the fund has lost 4.9% while the index has dropped 6.4%. The longer-term numbers are considerably more encouraging with performance being in the top two quartiles dating back to 2002. However, whether the new management team is able to repeat this level performance remains to be seen. The volatility of the fund is higher than both the benchmark and the category average.
Costs for the fund are reasonable ranging between 2.25% for the front end version to 2.46% for the DSC version.
Given the recent change in management, we would be reluctant to recommend this fund at this point in time. It is our opinion that there are better options available in the Canadian balanced category for most investors.