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Fidelity® Global Balanced Fund

  • Symbol: FGBLX
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  • Quarterly Fund Review
Fidelity Global Balanced Fund: Quarterly Fund Review
DECEMBER 31, 2014
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Investment Approach

  • Fidelity® Global Balanced Fund is a globally diversified strategy that seeks income and capital growth by investing in both U.S. and non-U.S. equity and debt securities.
  • The fund has a neutral allocation of 60% equities and 40% bonds, with a bias toward developed markets.
  • Assets are divided among several subportfolios, representing our core holdings in developed markets and "opportunistic" out-of-benchmark investments in lower-quality bonds, REITs and emerging-markets securities. These subportfolios are managed by specialized asset-class investment professionals, allowing the fund to incorporate investment and research expertise from across the Fidelity organization.
  • In making asset allocation decisions for the fund, the lead portfolio managers have the flexibility to make moderate tactical shifts among asset-class and regional weightings to help manage risk and capitalize on relative-value opportunities.

Market Review

Despite a relatively calm year overall, rising divergences and weak global growth provoked market gyrations in the final quarter of 2014. A strengthening expansion and waning stimulus in the U.S., contrasted with disappointing growth and more policy easing in other major economies, led to rising exchange-rate volatility, tumbling energy and commodities prices, and falling bond yields. In the U.S., riskier and less-liquid areas of the equity and bond markets lagged, while defensive assets such as long-term Treasuries surged, lending an underlying defensive tone to an up market; non-U.S. assets generally suffered declines.

While the U.S. economic expansion gained steam throughout 2014, growth in other major economies was disappointing. Germany and Europe experienced a slowdown, Japan tipped into recession, and China continued to face late-cycle pressures and high risk of a growth recession. The dramatic drop in oil prices had varying influences, with large importing countries such as the U.S. and China enjoying the input disinflation that reduces costs for both consumers and businesses. The largest impact has been on countries heavily reliant on oil and commodities exports, such as Russia and Brazil.

U.S. taxable investment-grade bonds posted a modest gain for the quarter, significantly outperforming their global peers amid continued easy monetary policy and increased demand for safe-haven assets. Conversely, high-yield as well as non-U.S. developed- and emerging-markets debt all turned in modestly negative results, as investors sought safety elsewhere. Despite flattening dramatically in 2014, the U.S. Treasury yield curve still remains steep relative to history. Credit spreads, or the yield difference between Treasury and essentially similar non-Treasury bonds, also remain narrow relative to their historical averages.

Intra-stock return correlations at quarter end remained lower than the elevated average of the past few years. Lower correlations provide more opportunities for active security selection - particularly in non-U.S. markets. Similarly, bond sector returns showed narrow - but widening - dispersion this quarter, offering active managers the potential to generate returns by over- and underweighting sectors relative to benchmarks.

BROAD ASSET CLASS RETURNS (%) PERIOD ENDING DECEMBER 31, 2014
Broad Asset Class Returns
  • You cannot invest in an index. Past performance is no guarantee of future results.
  • U.S. Equities - Dow Jones U.S. Total Stock Market Index, Non-U.S. Developed-Markets Equities - MSCI World ex USA Index, Emerging-Markets Equities - MSCI Emerging Markets Index, Commodities - Bloomberg Commodity Index Total Return, High-Yield Debt - BofA Merrill Lynch U.S. High Yield Constrained Index, Floating-Rate Debt - S&P/LSTA Leveraged Performing Loan Index, Emerging-Markets Debt - J.P. Morgan Emerging Markets Bond Index Global, Real Estate Debt - Fidelity Real Estate Income Composite Index, Investment-Grade Debt - Barclays U.S. Aggregate Bond Index, Inflation-Protected Debt - Barclays U.S. 1-10 Year Treasury Inflation-Protected Securities (TIPS) Index (Series-L), Short-Term Debt - Barclays U.S. 3 Month Treasury Bellwether Index
  • Source: FMRCo., periods greater than 1 year are annualized
Performance Review
DETAILED FUND ATTRIBUTION RELATIVE TO BENCHMARK

Strategy: Asset Allocation

Domestic Equities

  • An average overweighting in U.S. equities modestly contributed to relative performance, as this asset class outpaced the fund's Composite benchmark. (Positive)

International Equities

  • A modest average underweighting in Canadian equities slightly hampered relative performance, as this asset class sharply underperformed the fund's Composite benchmark. (Negative)

  • Lighter-than-benchmark exposure to Asia Ex-Japan equities aided performance, but this effect was mostly offset by weak security selection in the category. (Positive)

Fixed Income

  • A slight average overweighting in investment-grade bonds had a neutral impact on relative performance.

Strategy: Security Selection

Domestic Equities

  • Weak stock selection in the United States was the primary reason the fund underperformed its Composite benchmark. (Negative)

  • Adverse security selection in health care, information technology, financials, materials and energy hampered relative performance. Overall positioning in consumer discretionary and utilities also detracted. (Negative)

  • Stock picks in consumer staples and industrials were additive, and partially offset overall negative security selection. (Positive)

International Equities

  • Stocks choices in foreign developed markets were generally beneficial, led by picks in Germany, the United Kingdom, Sweden and Spain. (Positive)

  • Within Europe equities, selections in pharmaceuticals, biotech & life sciences, capital goods and real estate provided the biggest boost. Picks in energy, health care equipment & services, retailing, and food, beverage & tobacco were negative but were offset by favorable positioning in those groups.

  • Security selection in Canada also aided relative performance. (Positive)

  • Picks in Japan equities were a slight detractor. (Negative)

  • Currency selection was beneficial overall. (Positive)

Fixed Income

  • Security selection in investment-grade bonds slightly detracted from the fund's relative performance. Strong selections among corporate bonds in the utilities and industrials sectors were negated by poor performance in government holdings. (Negative)

Outlook and Positioning

At the conclusion of the fourth quarter, we remained somewhat hesitant toward equities generally, and the fund was underweighted overall, with roughly 58% of the portfolio in stocks. That said, we found opportunities in Europe relatively more attractive because valuations there appeared reasonable based on historical averages. The fund had a roughly neutral allocation to Europe equities, and we plan to maintain that level of exposure for now.

During the quarter, we shifted our U.S. equity exposure to a slight overweighting in an effort to position the fund to benefit should upward momentum continue to carry stocks higher. Despite our concern about elevated valuations, we plan to maintain this positioning.

We lifted the fund's Japan equities allocation to a slight overweighting. We were encouraged by indications that the Japanese government will announce a supplementary budget in January that is designed to reduce the country's debt and help fund economic stimulus.

Elsewhere, we trimmed the fund's allocations to stocks in Canada and the Asia Ex-Japan region. At quarter end, equities in each category accounted for about 1% of the portfolio. We continued to avoid direct investment in emerging-markets (EM) equities due mainly to slowing growth in China, a strengthening U.S. dollar and anticipated changes in Federal Reserve monetary policy, which could exacerbate capital flight from developing markets.

The fund was overweighted in investment-grade bonds at quarter end, with about 42% of the portfolio allocated there. We expect to keep our fixed-income allocation close to this level in order to increase the amount of income in the portfolio and help offset the downside volatility of stocks.

Among out-of-benchmark fixed-income holdings, we reduced our allocation to high-yield bonds to less than 1% of the portfolio, given current turbulence in that market related to declining oil prices. Additionally, we eliminated the fund's small position in EM debt.

At quarter end, the fund's largest country allocations were the United States (47%), Japan (15%), the United Kingdom (7%), Germany (7%) and Italy (4%).

In the months ahead, we will continue to pursue growth and income opportunities worldwide, with an eye toward capital preservation.

1. No Transaction Fee Fidelity funds are available without paying a trading fee to Fidelity or a sales load to the fund. However, the fund may charge a short-term trading or redemption fee to protect the interests of long-term shareholders of the fund. Shares are subject to the fund's management and operating expenses. See Expenses & Fees for more information.

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