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Investment Commentary


A Message from the Fidelity® U.S. Large Cap Equity Strategy Portfolio Management Team*

By Barry Golden, Portfolio Manager, Strategic Advisers LLC — 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

Diversification across large cap styles (value, core & growth) may help to provide stability and capital appreciation over the long term.

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.

The Fidelity U.S. Large Cap Equity Strategy delivered strong positive returns

The Fidelity® U.S. Large Cap Equity Strategy seeks capital appreciation and to outperform the S&P 500® Index over a full market cycle.

Similar to the broader stock market, the strategy delivered a strong gain for the quarter on a pre-tax and after-tax basis. However, since its inception in April 2019 through the end of the year, it did not keep pace with the S&P 500 Index on a pre-tax basis, net of fees. In contrast, on an after-tax basis, it outpaced the benchmark over the same period.

  • Our investments in growth, core and value stocks had positive returns for both the quarter and since inception period.

During the fourth quarter:

  • Our research in the health care sector resulted in strong stock selection in both health care equipment and pharmaceuticals stocks.
  • We also had good stock selection within the capital goods, real estate, and auto industries.
  • Having less exposure to real estate stocks further helped performance.
  • Our stock selection in transportation, energy, and bank stocks led to poor performance.

Positioned for economic growth, with an eye on valuations

2020 Outlook

  • Although U.S. economic growth has slowed, it is still positive. This could support further growth in earnings and stock prices.
  • Instances of market volatility are also normal as the U.S. economy matures and provides opportunities for tax-loss harvesting.

Given that we continue to believe the U.S. economy is in a mature growth phase, the strategy maintains its exposure to parts of the market that we believe can benefit from economic growth. For example, the strategy has higher exposures to stocks within financials, communications, and health care. Valuations are also a key consideration, to limit exposure to stocks that may be expensive given their earnings potential. Thus, the strategy has less exposure to stocks within information technology, real estate, and utilities.