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Fidelity® Global Balanced Fund

  • Symbol: FGBLX
  • No Transaction Fee No Transaction Fee 1
  • Fidelity Fund Pick Fidelity Fund Pick  2
Fidelity Global Balanced Fund: Quarterly Fund Review
JUNE 30, 2015
View as PDF

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

The global economy maintained its uneven growth in the second quarter, which mollified deflationary fears, pushed up global bond yields and resulted in nearly flat results across most major asset classes. The slow global backdrop continued to weigh on multinational and commodity-producer profits. Europe's midcycle expansion remained on solid footing despite uncertainty around Greece, while the U.S. consumer benefited from wage growth and a better balance sheet. Declining oil prices and a strengthening dollar have had significant deflationary influence in the U.S.; however, both showed signs of stabilization this quarter. Japan entered a tepid early cycle alongside monetary stimulus, a weaker yen and new corporate-governance standards. China slipped into a growth recession, with a sharp selloff in that country's stock market from mid-June highs. Concern over China and Greece sparked higher volatility in the quarter's final weeks.

Global equities displayed little performance differential among market-cap and style segments during the quarter, although small-cap and growth-oriented stocks remain the top performers year-to-date. Real estate investment trusts (REITs) saw a sizable selloff, though, as the rise in long-term market interest rates curtailed the attractiveness of their dividend streams.

Reversing recent trends, commodity prices rebounded this period, and developed-country currencies generally rose against the U.S. dollar, supporting slightly positive non-U.S. equity returns in dollar terms.

Rising interest rates led most global fixed-income categories to post negative returns this quarter, with long-duration bonds declining most. Given their higher coupons, lower-credit-quality categories outperformed higher-quality issues. Despite the rise in rates, bond yields remained well below historical averages; however, credit spreads - the yield premiums demanded by investors for holding riskier bonds - moved closer to historical norms across most categories.

Bond markets were particularly jittery ahead of the U.S. Federal Open Market Committee (FOMC) meeting in June, which many investors assumed could mark the start of higher policy interest rates. The U.S. Federal Reserve said it still expects to raise rates in 2015, but timing remains dependent on economic data.

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

Strategy: Asset Allocation

Domestic Equities

  • An average underweighting in U.S. equities had a slightly negative impact on relative performance, given the market's modestly positive second-quarter result.


International Equities

  • An average underweighting in Asia ex Japan equities lifted relative performance as this asset class sharply underperformed the fund's Composite benchmark (Positive)

  • An untimely overweighting in European stocks had a net negative effect on relative results, as the market lagged the fund's Composite benchmark at times during the quarter.


Fixed Income

  • The fund's non-benchmark allocation to an investment-grade bond ETF dampened relative performance as the result fell short of the Composite benchmark.


Strategy: Security Selection

Domestic Equities

  • Security selection in the United States was modestly additive to results - and the primary reason the fund outpaced its Composite benchmark. Stock picks in information technology contributed the most.


  • Looking at individual holdings, the fund benefited from a non-index position in Zebra Technologies, which designs and manufactures a broad range of technology products. The stock popped in May after the firm announced very strong first-quarter financial results, including record sales.

  • An overweighting in Gilead Sciences was another plus. Gilead shares traded at record levels, rising roughly 20%, largely on the continued success of its new drug, Sovaldi®, a once-daily, all-oral treatment for hepatitis C. Gilead also remains a market leader in HIV drug treatments. In addition, Gilead raised its earnings guidance.

International Equities

  • Stock choices in Europe were by far the biggest contributor to relative performance, fueled by picks in the U.K.


  • Selections in Japan slightly hampered performance versus the Composite benchmark.


Fixed Income

  • Security selection in investment-grade bonds had a negative effect on relative performance.


Outlook and Positioning

We made some shifts during the period based on our view of global macroeconomic conditions. One of our biggest changes was our move to underweight U.S. stocks, the fund's largest equity component. As the U.S. economic recovery entered its sixth year, we believed we could find better momentum elsewhere in the world. To that same end, we maintained an underweighting in Canada, as we thought the market there - dominated by energy and financials names - lacked attractive growth options. Also, we were wary of Canada's heavy exposure to commodities prices and a potential housing bubble there. We found opportunities in Europe more attractive because of cyclical improvements in markets there along with valuations that appeared reasonable based on historical averages, so we added to our stake.

Turning to Asia, we grew more bullish on Japan's prospects as corporate governance began to improve due to implementation of the "third arrow" of Abenomics - Prime Minister Shinzo Abe's series of structural reforms. We were less optimistic on the rest of Asia, where a surplus of exports met very little demand from the global marketplace. We thus maintained an underweighting in Asia ex Japan.

On the fixed-income side, we underweighted U.S. investment-grade bonds in order to finance other bond classes we thought had better potential.

Unorthodox global monetary policies and uncertainty surrounding the timing and degree of "normalization" are factors we see weighing on capital markets. Monetary policies around the world appear to be at different points of expansion and contraction.

Here in the U.S., unorthodox quantitative easing in the form of bank-reserves expansion has already lowered the cost of capital. In Europe, sovereign assets have been similarly supported by the March 2014 announcement of the European Central Bank's asset-purchase program.

Further east, the Bank of Japan's balance-sheet expansion is the largest in percentage terms vis--vis countries' gross domestic product. Any conundrum lies in the rest of Asia, where China remains a factor. Exerting positive influence globally so long as its local situation was improving, China - perhaps the world's largest economy - may prove proportionately disruptive on the way back down as its government implements reforms that could yield long-term positives but near-term negatives. As for other emerging-markets countries, a handful are working to reform and restructure their economies, which may merit a second look by us in due time.

All of these factors may account for decreasing degrees of correlation among global equities. Opportunities lie at the country level, and we intend to remain nimble in looking for markets in which to invest appropriately.

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