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Investment Commentary


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

By Michelle Morgan, Portfolio Manager, Strategic Advisers LLC — December 31, 2019

Q4 2019 Highlights


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


  • Although concerns about the global economy and trade tensions resulted in slower corporate profit growth, U.S. consumer confidence and spending remained resilient. It was supported by a strong jobs market and rising wages.


  • Improvement in the outlook for the world’s second biggest economy could help boost many export-oriented economies, 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

  • U.S. stocks, as measured by the Fidelity U.S. Large Cap Index℠, rose 9.2% during the quarter.
  • From a sector perspective, growth stocks within Technology and Health Care performed strongly.

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, as measured by the the Fidelity U.S. Large Cap Index, rose 31.8%. 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%.1
  • Value stocks outpaced growth stocks in the final months of 2019, and finished the year up 26.5%.2 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%.3
  • Low volatility stocks lagged the broader market, but were still up 27.1%.4

Delivered enhanced after-tax returns despite muted volatility

Investment Objective

The Fidelity® Tax-Managed U.S. Equity Index Strategy seeks to pursue the long-term growth potential of U.S. large-cap stocks and to deliver enhanced after-tax returns through active tax management.5

Client portfolios generally reflected the performance of the Fidelity U.S. Large Cap Index on a pre-tax basis during the fourth quarter of 2019.

Losses were harvested across multiple sectors, but Energy, Industrials, and Health Care represented the greatest source of opportunity. While these were not the worst performing sectors, we were able to tax-loss harvest specific stocks that performed poorly within the sectors and in the overall market. When necessary, stocks were sold at gains to help rebalance portfolios back to the appropriate risk and return characteristics of the U.S. large-cap stock market.

It is important to note that when including fees, the Fidelity® Tax-Managed U.S. Equity Index Strategy (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, despite muted volatility, the Strategy delivered enhanced returns over the index on an after-tax basis, net of fees.

Taking advantage of market volatility

2019 Q4 Outlook

  • As we continue into late cycle, we believe U.S. stocks may grow more slowly and experience periodic bouts of volatility.
  • Increased market volatility may improve the opportunities to enhance after-tax returns.

We invest with a long term view and continue to rebalance portfolios in an effort to keep pace with the index on a pre-tax basis. Our goal is to enhance your after-tax returns through tax-loss harvesting. Based on our current view of the business cycle, we anticipate periodic bouts of volatility. Potential concerns over slowing global growth, geopolitical risks, and global trade may provide us with additional opportunities for tax-loss harvesting.