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Investment Commentary


A Message from the Fidelity® Tax-Managed International Equity Index Strategy Portfolio Management Team*

By Jennifer O’Brien, Portfolio Manager, Strategic Advisers LLC — December 31, 2019

2019 Market Highlights


  • Concerns about global trade and slow economic growth subsided during the final months of the year, leading to steadily-rising returns for the quarter.


  • Positive developments in the Chinese economy, along with progress in both Brexit and China-United States trade negotiations, could boost export-driven regions such as the E.U., Japan, and the U.K


  • Central banks continued to take actions to stimulate economic activity by keeping rates low and providing liquidity support to stock and bond markets across their regions.

International developed stock markets rallied as concerns about slowing economic growth subsided

2019 Q4 Performance Summary

  • International developed market stocks, as measured by the MSCI®EAFE Index (Net MA Tax), rose 8.2% during the quarter and 22.3% for the year.
  • U.K. stocks led international developed markets for the quarter.
  • Pre-tax returns for the strategy were in line with the index, net of fees.

After a modest start, developed market international stock returns rallied in the final months of 2019. The MSCI EAFE Index (Net MA Tax) finished the fourth quarter up 8.2% after suffering a 1.0% loss in the third quarter. For the full year, the index finished strong with a 22.3% return.

Investor sentiment improved in the fourth quarter in response to:

  • Positive developments in the Chinese economy: In the latter part of 2019, the Chinese economy stabilized, which raised investor confidence that export-oriented nations could see a pickup in economic activity. While an economic resurgence remains to be seen, this encouraging news led to higher international stock market returns.
  • Progress on Brexit: Following constructive Brexit developments, U.K. stocks experienced the strongest performance for the quarter among countries that comprise a significant portion of the MSCI EAFE Index. However, for the year, U.K. stocks lagged the index while European (ex-U.K.) stocks outpaced the index and other MSCI EAFE regions.
  • Progress on trade negotiations between China and the United States

Across international developed markets, growth stocks edged out value stocks for the quarter and held a commanding lead for the entire year. On a sector basis, technology and health care stocks led for both the quarter and the full year. Industrials, consumer discretionary, and materials were not far behind.

The strategy took advantage of the few tax-loss harvesting opportunities in the fourth quarter

The Fidelity® Tax-Managed International Equity Index Strategy

  • Seeks to pursue the long‑term growth potential of international developed market stocks
  • Seeks to deliver enhanced after-tax returns through active tax management1
  • Diversified across different regions, including Europe, Australia, Asia, and the Far East.
  • Diversified across investment styles, including growth, value, and core stocks

For the fourth quarter, pre-tax returns for the Fidelity® Tax-Managed International Equity Index Strategy (the “strategy”) were in line with the Fidelity Developed ex North America Focus Index (Net), net of fees. While volatility spiked higher in the third quarter, international developed market stocks experienced a solid, steady climb for nearly the entire fourth quarter. Even in this environment of diminished volatility, we were still able to find some tax-loss harvesting opportunities, on a limited basis.

It is important to note that when including fees, the strategy will generally lag the index on a pretax basis. Through rebalancing, deferral of gains where possible, and tax-loss harvesting over the quarter, the strategy has the potential to deliver enhanced returns on an after-tax basis. For this quarter, volatility helped the strategy generate returns over the index on an after-tax basis, net of fees.

Going forward, we anticipate the potential for further gains, but with higher volatility

2019 Q4 Outlook

  • We believe that most developed international economies are in the late phase of their business cycles, which is a time of slow economic growth and higher market volatility.
  • Recently, signs of growing stability and a potential resurgence of economic growth have emerged. These developments may be a positive sign for international stocks.

Economic growth in most regions remained positive, albeit at a slow pace. However, signs of potential future growth have emerged, which could provide a boost to international stock markets. Central banks have been making consistent efforts to stimulate economic growth through low interest rates and liquidity support. We believe these actions could have a positive impact on international developed markets. Also, stabilization in the Chinese economy could bode well for the many export-oriented economies that are included in the MSCI EAFE Index.

Furthermore, we believe that most developed international economies are in the late phase of their economic cycles. This is usually a time of slow growth and higher market volatility.

Taking advantage of market volatility

We invest with a long-term view and continue to rebalance portfolios to help ensure close pretax tracking to the market index. We expect that market volatility will likely increase due to concerns over inflation, the pace of Fed rate hikes, geopolitical risks and global trade. This may provide us with additional opportunities for tax-loss harvesting.