- 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.
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.
- 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
Strategy: Asset Allocation
Strategy: Security Selection
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.
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