Asset classes include primarily domestic and international stocks, investment grade bonds, and short-term instruments but may also contain limited exposure to secondary asset classes such as commodities, emerging market stocks, high yield bonds, and leveraged loans.
In pursuit of performance benchmarks, managers are given the flexibility to maintain a moderate tactical allocation around asset class targets, with variations of +/-10%. As an example, the Fidelity Asset Manager® 50 fund is shown below. The table shows the neutral asset allocation, as well as the allowable variations for the fund for each asset class.
In making asset allocation decisions for the funds, managers draw on the combined resources of the Asset Allocation Division (AAD) and Fidelity Management and Research Company (FMR) and are guided by four primary principles.
- Managers focus on the broader economic picture, accounting for factors such as projected economic growth rates of inflation for different countries throughout the world, interest rate projections along all points of the yield curve, currency fluctuations, and fiscal and monetary policies of different governments.
- We assess the fundamentals of various companies in each underlying portfolio, in consultation with the managers and analysts dedicated to those portfolios. What we learn from these assessments about the economy and the overall business environment has proven invaluable over time.
- We pay close attention to valuations of each asset class relative to its peers and on an absolute basis, with managers continually looking for investments that provide the best long- and short-term value.
- Each fund also relies on sentiment indicators to help take the pulse of investor psychology, which can be an effective tool in projecting future movements of various asset classes.