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Fidelity Investments Enhances Industry-Leading Target Date Retirement Strategies
Company Adjusts Glide Path for Fidelity Freedom® and Fidelity Advisor Freedom® Funds To Help Improve Retirement Outcomes for InvestorsBOSTON -- Fidelity Investments®, a leading global asset management firm with $1.7 trillion in managed assets, today announced it will enhance the glide path for its Freedom Fund product lines and other target date retirement products by adjusting the allocation of assets across equities, bonds and cash to help improve retirement outcomes for investors.
The glide path enhancements reflect the evolutionary nature of Fidelity’s target date retirement strategies and are based on extensive research and analysis, including refreshed review of investor demographics and behaviors derived from millions of investors in Fidelity’s proprietary 401(k) recordkeeping database of 12 million participants, updated capital markets assumptions (CMAs) and an enhanced approach to evaluating loss-recovery and risk aversion.
Fidelity is the largest provider of target date funds with more than $170 billion under management on behalf of approximately 6.5 million investors in its Fidelity Freedom Funds product line (Fidelity, Fidelity Advisor, Fidelity Index and VIP)1.
“Since helping pioneer the concept of target date investing with the launch of the Freedom Funds in 1996, we have maintained an unwavering commitment to create portfolios that can help investors achieve retirement readiness by evolving the strategic asset allocation over time,” said Derek L. Young, president of Fidelity’s Global Asset Allocation division. “Given the shifting dynamics in the marketplace and our experience managing multi-asset class portfolios through a range of market cycles for varying investor needs, we believe the enhancements ensure our best thinking is being applied to the investment process.”
Research-Based Foundation of Fidelity’s Glide Path
The glide path, which is a critical component of Fidelity’s target date funds, is designed with a long-term orientation and seeks to balance expected return and risk at each point in an investor’s time horizon. Fidelity’s approach to glide-path construction combines and applies three areas of research:
• Investor Behavior and Demographics. Fidelity’s extensive proprietary 401(k) recordkeeping database of 12 million retirement savers provides the investment team with a broad base upon which to observe the characteristics and investment behavior of investors, in terms of point-in-time snapshots and trends over time. These observations influence the key demographic and risk assumptions that inform the glide-path analysis.
• Secular-Based Capital Market Assumptions. Fidelity’s proprietary CMAs developed by our Asset Allocation Research Team (AART) incorporate a long-term, historical perspective and a forward-looking perspective on anticipated return, risk, and correlations over a 20-year period. The CMAs influence the asset-allocation positioning along the age spectrum. In general, Fidelity believes that “starting points matter” and that the company’s secular capital markets outlook informs its asset allocation positioning within the glide path.
• A Risk-Capacity Framework. Fidelity has refined its assessment of investors’ ability and tolerance for withstanding portfolio volatility or losses, also described as loss-recovery and risk-preference. By accounting for investors’ risk capacity at different ages, the framework establishes a “risk boundary” that considers investor behavior and the market conditions experienced by investors to appropriately manage asset growth potential, longevity and stability in retirement.
Adjustments to Asset Allocation
As a result of the extensive research, the glide path for the Freedom Fund product lines and other target date retirement products will be enhanced by increasing equity allocations across most of the dated portfolios, with a proportional decrease in other asset classes, notably short-term debt. Over the next several months, all of Fidelity’s target date retirement funds (including Fidelity and Fidelity Advisor Freedom Funds) will begin to adjust their asset allocation to align with the updated glide path.
For example, the target asset allocations for Fidelity Freedom 2020 Fund will be modified along the following lines:
* These are projected targets for illustrative purposes that may or may not be reached.
The glide path of Fidelity’s target date portfolios remains focused on accumulating assets for shareholders that, in considering certain assumptions, seeks to provide inflation-adjusted retirement income equal to approximately half of an investor’s final pre-retirement salary. For investors, it is important to recognize that while the target date retirement portfolios are designed to include assets that act as a primary source of retirement income, these assets should be combined with other complementary sources of income (e.g., Social Security, defined-benefit plan benefits and personal savings) to achieve Fidelity’s overall retirement planning target of income replacement equal to 85% of final salary.2
Fidelity’s research demonstrates that achieving an adequate level of retirement income with a target date portfolio is more effective when investors are working with Fidelity. This includes a combination of prudent savings and withdrawal behavior by investors and prudent investment management that blends the need for capital appreciation in the savings years with income and stability in the retirement years.
“The current enhancements to our target date products are supported by dedicated fundamental and quantitative asset allocation research, regular analysis of participant behavior, and ongoing evaluation of the investment structure,” said Bruce Herring, group chief investment officer for Fidelity’s Global Asset Allocation division. “While the financial landscape has changed, Fidelity’s investment process remains focused on producing a glide path for Fidelity’s target date retirement funds that can help investors achieve their retirement objectives.”
About the Fidelity and Fidelity Advisor Freedom Funds
Fidelity Freedom Funds and Fidelity Advisor Freedom Funds are comprehensive investment options that can help investors take the guesswork out of building and maintaining an age-based retirement portfolio. Each fund name includes a date, which can help investors choose the fund that represents their anticipated year of retirement. The asset allocation becomes more conservative over time, until reaching the static allocation in the Freedom Income portfolio approximately 17 years after the target date. An important objective of the glide path is to mitigate downside risk for shareholders as they move through retirement. Information on the Freedom Fund product line can be found on www.fidelity.com and www.advisor.fidelity.com.
About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $4.2 trillion, including managed assets of $1.8 trillion, as of August 31, 2013. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.
1 As of August 31, 2013; Total assets invested in Fidelity Freedom Funds.