If you understand your risk tolerance and time horizon and are comfortable making adjustments to your risk profile as necessary, a target risk fund may be a smart investment choice. Although Fidelity Asset Manager® funds maintain a disciplined allocation across various asset types according to the goal of the individual fund, we do employ a series of money management principles designed to help each fund outperform its benchmark. The methodologies used by each fund’s management team can be divided into two groups: asset allocation and research-driven security selection within those asset classes.
How Fidelity Manages Asset Manager® Funds
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.
Fidelity Asset Manager funds invest in Central Funds, which are underlying funds managed exclusively for this purpose. This structure allows each manager to take maximum advantage of investment and research expertise across Fidelity's investment management organization. Each asset class in which the funds invest is represented by one or more of these Central Funds, which are managed by experienced Fidelity portfolio managers who specialize in that particular sector of asset class.
Asset Manager funds currently have access to 18 Central Funds. This group includes 10 domestic equity sector funds, 2 non-U.S. equity funds, 4 fixed income funds, and 2 funds for both commodities and short-term debt. This structure helps us take advantage of Fidelity's research-driven security selection process.