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Fidelity® Wealth Services


A Message from the Investment Management Team at Strategic Advisers LLC

By Brian Enyeart, CFA®,* President, Strategic Advisers LLC - First Quarter 2020

First Quarter 2020: Key Takeaways


With millions of Americans staying home, spending on nearly all goods and services has fallen, which is why we believe the U.S. economy has moved from slow growth to the onset of recession.


The anticipated economic slowdown coupled with the viral outbreak has led to some of the most volatile markets we’ve seen in more than a decade.


The strategy’s lower allocation to stocks and higher allocation to bonds compared to the long-term asset allocation mix helped reduce volatility and limit near-term losses.

U.S. economy entered the onset of a recession

A defensive approach to investing:

Seeks to deliver less significant losses during down-markets in exchange for limited gains in up-markets compared to a total return approach.

  • The U.S. response to the swift and deadly spread of the virus required Americans to suspend activities
  • With spending on goods and services dropping, many companies are being forced to lay off workers
  • While the path of the virus is unknown, historically markets have eventually stabilized and recovered from recessions

Volatility ramped up as the virus spread

First Quarter 2020: Account Summary

We’re working to maintain the proper level of defensiveness in your account:

  • We are continually assessing whether the investment strategies that the underlying managers pursue are providing the proper level of defensiveness in your account.
  • For example, our analysis of recent actions in the U.S. Treasury bond market concluded that intermediate-term U.S. Treasuries may offer better protection than long-term Treasuries.
  • Therefore, in certain defensively managed accounts, we reduced our exposure to long-term Treasuries and reallocated capital to intermediate-term Treasuries.
  • Similar studies and considerations are being conducted for all other investments in your account.

Markets rallied in the beginning of 2020, but as the virus moved across countries, global markets became volatile. Riskier investments like broad-market stocks fluctuated the most. Moreover, investors’ efforts to raise cash led to the forced selling of many other asset classes, such as corporate bonds, municipal bonds, and commodities, resulting in volatility in them as well. However, fiscal and monetary policy intervention by the U.S. government helped restore stability and led to improved markets, particularly in assets like high quality bonds.

The unprecedented health issues, loss of life, and economic challenges have been painful to watch. We know how stressful it can be to see our investments rise and fall every day. While it may not feel like it now, we believe markets will eventually stabilize and the U.S. economy will eventually recover as they have historically done.

Your investment team is monitoring the situation and taking action as needed

We have tapped investment professionals all over the world to help understand the economic impacts of this health and humanitarian crisis. In our advisory capacity for you, we have access to Fidelity’s best financial consultants, technology, research, and trading capabilities.

Here’s what we are doing on your behalf:

  • We are tapping into the expertise of our Fidelity economic team, medical experts around the world, and our deep pool of internal and external investment research.
  • We are analyzing efforts to manage the spread of COVID 19, actions of central banks and governments, and their effects on the economy.
  • Recently, we have sought to lower risk by decreasing exposure to stocks in favor of bonds.
  • We’ve taken steps to create more liquidity in your portfolio by raising cash in case you need it.
  • We have focused on tax-loss harvesting for those accounts where taxes matter.

Conservative stocks and high quality bonds helped temper volatility

During the quarter, we maintained our long-term positioning in a mix of conservative stocks and high-quality bonds.

Here’s how that positioning benefitted your defensively managed account:

  • With broad market stocks down 21.0%1 for the quarter, conservative stocks like low volatility (-17.5%2) and quality (-15.3%3) tempered losses in your account.
  • The defensive strategy holds lower allocations to stocks and higher allocations to bonds as compared to the long-term asset allocation target mix, which also helped reduce volatility.
  • We continue to maintain a strategic allocation to high quality bonds like U.S. Treasuries. They provide income and typically offer stability during times of heightened volatility. High quality bonds were up 3.3%4 for the quarter, led by U.S. Treasuries which were up 8.5%.5 Interest rates declined significantly during the quarter as the market’s expectations for economic growth and inflation fell.

Staying invested through recessions

Conservative stocks include:

  • Minimum volatility stocks - those that have historically experienced relatively low price volatility.
  • Quality stocks - those issued by companies that possess high quality financial characteristics.

When markets fall, it can feel stressful for investors to see their investments lose value. Some investors may be tempted to abandon their strategy when markets becoming rocky. However, trying to time the markets may result in missing out on recovery gains that often occur unexpectedly.

For example, in a recent study, an investment of $10,000 in the S&P 500 Index in 1980 would have grown to a value of $659,515 as of December 31, 2018. Yet, missing out on just the five best days over that period would have reduced the portfolio’s value by roughly 35%.6

Backed by our deep research and experience, we remain patient and disciplined through periods of market distress. By taking a long-term view, investors who stayed invested may have a better chance of reaching their financial goals.

Updates on Tax-Sensitive7 Accounts

  • Market volatility in the first quarter led to significant opportunities for tax-loss harvesting, which could lead to tax savings for investors in the future.
  • Municipal bonds experienced very unusual volatility during the quarter, but largely held their value in the end.
  • Federal Reserve actions and government fiscal stimulus may provide stability for states and municipalities.