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Fidelity® Wealth Services


A Message from BlackRock’s Investment Team*

Michael Fredericks, Managing Director – March 31, 2020


Global stocks selloff

Stocks suffered sharp losses as COVID-19 spread and social distancing measures disrupted much of the global economy.

Choppy fixed income markets

The high-risk environment led investors to flee fixed income sectors in favor of cash.

Attractive opportunities developing

The selloff created attractive long-term opportunities but we expect uncertainty to remain elevated.

Within the BlackRock® Diversified Income Portfolio2, we focus on our core objectives:

  • uncovering attractive income opportunities around the globe
  • actively managing portfolio volatility as market conditions change
  • helping you meet your future financial goals

Asset Class Recap

Domestic stocks

  • US stocks1 dropped 34% from their peak before bouncing in late March to end the quarter down 19.6%.
  • Dividend-paying stocks were also sharply negative.

Foreign stocks

  • Developed foreign stocks fell alongside domestic markets.
  • Emerging markets were also down similar levels.


  • Treasury and core bonds were rare positive performers over the quarter.
  • Corporate bonds, of both higher and lower quality, suffered losses.

COVID-19 fallout shakes markets

Global market volatility intensified in March as parts of fixed income played catch-up to the stock decline that began in February. Corporate bond markets initially held up well, but panicked selling and a rush to hold cash left investors with few places to hide. The COVID-19 outbreak also contributed to forced selling3 by volatility-driven strategies, which intensified the weakness. Liquidity was weak as buyers were largely absent. Even higher-quality, more liquid segments of fixed income fared poorly.

Opportunities are developing, but uncertainty remains as to how the curve of new COVID-19 cases will progress and what an eventual recovery may look like. We’ve been describing the situation as acts of a play:

  • We believe we’re most likely past Act One, characterized by indiscriminate selling and a “get me to cash” mentality.
  • We’re probably in the early stages of Act Two, where investment outflows have moderated and global markets start identifying winners and losers. Pockets of stress remain, but there is a tremendous amount of cash on the sidelines. Investors may start to look past near-term uncertainty for long-term value.
  • Investors likely have some time before Act Three, in which the economy finds a bottom and there is evidence of a sustainable recovery.

Carefully managing risk/reward

During the quarter, we made the following changes to the Portfolio:

  • Reduced short-term floating rate investment grade bond exposure in favor of a flexible fixed income fund to help better navigate the uncertain bond environment.
  • Removed Master Limited Partnerships4 (“MLPs”) in favor of holding more short-term investments given the material weakness and imbalance in energy supply and demand.
  • Reduced high-yield bonds in favor of more short-term investment exposure to help reduce overall levels of volatility.

Growth expectations have been revised to a lower level and economic data has moved sharply lower. However, we believe that much of that weakness is now expected. What’s more important is the shape of the virus curve and when new cases start to roll over. We are closely watching the second wave of infections that parts of Asia are now experiencing. We hope this provides guidance on what our timeline to normalization may look like.

In terms of positioning, it is important to note that:

  • The Portfolio was already conservatively positioned heading into the selloff, given our less favorable view on stock and bond prices and the potential for less upside.
  • Our preference is to be cautious in the near-term due to uncertainties around the virus.
  • We reduced risk during the quarter and preferred holding higher levels of short-term investments to help mitigate volatility.

Balancing fundamentals with uncertainties

We are comfortable managing the portfolio with less exposure to more volatile assets and will be patient in adding back risk. Three key takeaways around our views are:

  • Virus likely to impact growth materially in the near-term. It’s clear that COVID-19 is dramatically impacting economic activity as drastic social distancing measures are implemented globally to slow its transmission. In the U.S., we’ve seen record-breaking initial jobless claims and steep drops in services and manufacturing data. This was met with a staggering selloff in financial markets and the worst first quarter for U.S. stock returns since the Great Depression.
  • Massive policy response should soften the blow. The scale of policy response has been quicker and larger than anything we have seen historically, including 2008. As an example, the combined monetary and fiscal stimulus in the U.S. thus far is approximately 20% of GDP. These actions should help bridge the near-term shock to the system and ultimately support growth once this healthcare crisis recedes.
  • Value has been restored, but more clarity is needed to settle markets. Many stock and fixed income asset classes have re-priced to levels not seen for many years and offer attractive relative value for long-term investors. That said, until there is more visibility around the progression of the virus and the duration of the economic shutdown, markets are likely to remain volatile. Thus, managing near-term risks remains paramount.

We put your goals first

As always, we thank you for the trust you’ve placed in us. Should you have any questions, please be sure to reach out to your Fidelity Representative.