- 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.
The global economy lacked luster in the first quarter of 2015, but increased monetary easing outside the U.S. pushed global bond yields and non-U.S. currencies lower and equity markets higher. Most financial assets generated modest positive returns, despite higher market and foreign-exchange volatility. Non-U.S. equities led moderately positive global equity returns this quarter.
U.S. small-cap stocks outpaced large-cap stocks, and high-yield corporate bonds bested investment-grade bonds. The overall tone was mixed, though, as Treasuries performed better than the S&P 500® Index and commodities slumped further. Government bond yields in most developed economies hit multiyear lows as a result of central bank bond purchases in Europe and Japan, while U.S. long-term yields remained relatively high and attractive for foreign investors. China's weakness remains the world's biggest risk to the global outlook, and U.S. Federal Reserve monetary-policy tightening could spark increased market volatility.
For the quarter ending March 31, 2015, the large-cap S&P 500® Index rode a rollercoaster - to return 0.95%. Overall, growth stocks in the index gained while value-oriented names declined. Meanwhile, the tech-heavy Nasdaq Composite Index® gained 3.79%, outdone by the 4.32% advance of the small-cap Russell 2000® Index, benefiting perhaps from lower exposure to global-growth and to foreign-currency headwinds. Within the S&P 500®, sector performance was mixed: six of 10 notched a gain. Health care (+7%) led the way, driven by a resurgence of innovation. Consumer discretionary (+5%) benefited from a rise in consumer confidence and spending linked with decreasing unemployment. Energy (-3%) lost ground amid a continuation of crude oil's globally weak demand and glutted supplies. After leading last quarter, utilities (-5%) saw a shift toward assets with higher risk/reward potential.
Turning to bonds: Most categories benefited from robust investor demand, central-bank buying and solid credit fundamentals. Bond yields fell further below their long-term historical averages this quarter. In the U.S., taxable investment-grade bonds posted a positive return for the period, despite a February price decline driven by expectations of higher interest rates and inflation. The Barclays® U.S. Aggregate Bond Index rose 1.61%, well ahead of the negative return of international bonds struggling against a surging U.S. dollar. Longer-term maturities did best as rates fell and the yield curve flattened. Investment-grade credit gained about 2% amid demand for higher-quality assets with relatively high yields. Elsewhere, investors snapped up riskier assets, especially in the beaten-down energy and materials sectors, leading to roughly a 3% rally in the high-yield bond segment. Highly rated municipal bonds still offered better tax-equivalent yields than comparable Treasuries.
- 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 end of 2014, our outlook for stocks in Japan and Europe was generally more positive than our outlook for U.S. equities. Japanese and European equities have benefited from accommodative monetary policy, along with improving domestic and global economic conditions. At the end of the first quarter of 2015, we had meaningful overweightings in both regions.
Focusing on Japan, corporate profitability is rising, helping to strengthen returns on equity for many companies. Additionally, corporate dividends as a percentage of GDP continued to grow, increasing shareholder compensation. The employment situation in Japan also continued improving. For example, the number of job offers per applicant recently reached a level last seen in the early '90s, according to Thomson Reuters Datastream/Fathom Consulting. In our view, these factors helped Japan achieve the leading position among global stock markets for the first quarter. In U.S.-dollar terms, Japan also was aided by the fact that the yen did not weaken as much versus the dollar as the euro did.
Europe's January launch of a larger-than-expected bond-buying program by its central bank bolstered sentiment toward stocks in the region. We believe the level of capital flowing into stocks in Europe is likely to increase as investors seek to capitalize on attractive valuations amid a supportive monetary backdrop.
The bull market in U.S. stocks effectively stalled during the first quarter. We agree with Ned Davis Research that the causes for this appear to be optimistic investor sentiment combined with valuations that are rich from a historical perspective
According to Davis, investors hold lower levels of cash in their portfolios now than at the market peak in 2007, meaning they are fully invested, likely limiting near-term demand for stocks. What's more, investors' stock holdings are at their highest levels during the whole of this bull market. With a strong U.S dollar dampening results for U.S. multinational companies, and lower oil prices hampering energy producers, we think domestic equities could continue to post relatively muted returns in the months ahead.
In terms of asset-class allocation changes, we reduced the fund's U.S. equity overweighting, increased its overweightings in Europe and Japan, and shifted its sovereign bond allocation from an overweighting to about neutral with the Composite benchmark. We further reduced the fund's small position in Canadian stocks, and increased its modest stake in equities in Asia ex Japan. At quarter end, the fund had no exposure to emerging-markets equity or debt, high-yield bonds, commodities or REITs (real estate investment trusts), all of which are outside the benchmark.
Across world equity markets, the fund's top country allocations were the United States (52%), Japan (10%), the United Kingdom (10%), Ireland (5%), Germany (4%) and Sweden (3%).
Looking ahead, we will continue to pursue growth and income opportunities worldwide, with an eye toward capital preservation.
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