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Investment Commentary


A Message from the Fidelity® Equity-Income Strategy Portfolio Management Team*

By Elizabeth Johnson, Portfolio Manager, Strategic Advisers LLC and Naveed Rahman, Institutional Portfolio Manager, FMR Co.  -  December 31, 2019

Fourth Quarter 2019: Market Summary


U.S. stocks, international stocks, and bonds all rose, supported by U.S. Federal Reserve rate cuts and receding concerns about a global economic slowdown.


U.S. consumer confidence and spending remained resilient, supported by a strong jobs market and rising wages, but late-cycle tensions led to slow corporate profit growth.


Improvement in the outlook for the world’s second biggest economy could help boost many export-oriented economies as well, such as Germany, Japan, and South Korea.

Good year for quality and growth stocks, while value stocks picked up in the final months

2019 Q4 Highlights

  • Effective stock selection helped the strategy outperform the S&P 500 Index® over the fourth quarter (net of fees).
  • The strategy modestly underperformed the S&P 500 Index over the full year (net of fees), in a very strong period for the market.

In the United States, economic growth continued to remain positive throughout 2019. This was driven by strong consumer spending, low unemployment and solid wage growth. Over the last year, U.S. stocks rose 31.5%1, its best performance since 2013. A shift in U.S. Federal Reserve Bank policy, which included three interest rate cuts, helped drive returns higher. The markets viewed this policy shift favorably because lower rates may provide a boost to borrowing and spending. This could potentially help extend economic growth.

  • Growth stocks continued their multi-year outperformance, gaining 36.4%.2
  • Value stocks outpaced growth stocks in the final months of 2019, and finished the year up 26.5%.3 Value stocks tend to do well when economic growth is on firmer footing.
  • Quality stocks, which are companies with low debt and stable earnings, also performed well, returning an impressive 39.1%4.
  • Low-volatility stocks lagged the broader market, but were still up 27.1%5.

A focus on reasonably-priced, dividend-paying stocks contributed to the portfolio’s positive performance

The Fidelity Equity-Income Strategy seeks capital appreciation over a full market cycle and to:

  • provide dividend income greater than the S&P 500® Index.
  • focus the portfolio on more reasonably-valued, dividend-paying stocks. We believe these stocks provide the prospect for sustained and growing dividends.
  • underweight more expensive dividend-paying stocks.

The Fidelity® Equity-Income Strategy outperformed (net of fees) the S&P 500 Index in the fourth quarter, due to effective stock selection. Owing to its conservative nature, the strategy will not typically outperform the stock market in a quarter with such strong returns. For the full year, the strategy modestly underperformed (net of fees) the S&P 500 Index, in a very strong period for the market. Meanwhile, the strategy outperformed the Lipper Equity Income Fund Index6 for the quarter and the full year, net of fees.

  • The strategy seeks to invest in value-oriented stocks, and benefitted when value picked up at the end of the fourth quarter.
  • The healthcare sector once again contributed the most to results. Several of the companies we held in the healthcare sector delivered strong operating results in the 4th quarter.
  • An underweight to the strong performing information technology sector offset some of that performance. Additionaly, having an underweight position in hardware, a sub-sector of technology, detracted from the portfolio. We tend to have a smaller allocation to the technology sector than the overall market as that sector lacks in dividend-paying stocks.

Continued to add to healthcare stocks and reduced financial exposure

2019 Q4 Outlook

  • The price range between the cheapest and most expensive stocks in the S&P 500 Index remains near historic highs
  • We continue to believe volatility may increase given uncertainties surrounding the China/U.S. trade talks and U.S. presidential impeachment

Over the third quarter and beginning of the fourth quarter, health care stocks underperformed due to presidential campaign rhetoric and regulatory challenges. During this time, we added to cheap, highly cash-generative pharmaceuticals and heathcare insurance stocks. For many healthcare companies, we believed the negative market reaction was exaggerated relative to the actual impact on profitability.

Conversely, financials have kept up with a swiftly rising market and now offer valuations that we believe are less attractive than they were earlier. We reduced our position in financials, primarily banks, over the course of the quarter.