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Diving into the issues that shape Fidelity target date funds
Insights and intelligence for retirement leaders.
Diving into the issues that shape Fidelity target date funds
Insights and intelligence for retirement leaders.
Why our strategies
Fidelity's target date strategies offer participants and plan sponsors an integrated experience that draws on Fidelity's retirement expertise, a durable and time-tested investment process, as well as guidance and communications resources that help encourage disciplined savings—aiming to deliver superior value to clients.
Latest target date perspectives—Fulcrum Issues
Fulcrum Issues is an ongoing series featuring commentary from Fidelity's Target Date Investment Team. In this series, Fidelity portfolio managers and researchers share insights on current topics of critical importance to multi-asset class investors.
At this time, we view the outcome of the Chinese equity market as a Fulcrum Issue, because of its prominence in the global economy and its weight in the MSCI EM index. In our view, Chinese stocks are attractive on a cyclical basis, and investors with an intermediate time frame may be rewarded for an overweight exposure to emerging market equities.
Where Chinese equities go, emerging-market stocks will follow
- Valuations remain depressed for China's stocks based on forward earnings estimates.
- Our active allocation process focuses on comparing what we assess to be an asset's fair value with the asset's current price. In the intermediate term we believe that many of the negative trends impacting China have been reflected in the prices for Chinese equities, which now trade at near record low valuations with negative sentiment that offers favorable repricing potential.
- In addition, we believe the policy backdrop has turned more constructive, which could serve as a positive catalyst.
Charting valuations
MSCI China P/E Next Twelve Months
Source: Bloomberg Finance L.P., as of Jan. 31, 2024. P/E Ratio (NTM): The multiple of forecast earnings for the next twelve months that stock investors are willing to pay for one share.
Read prior Fulcrum Issues papers
An effective target date strategy helps investors navigate uncertainty through diversification that varies according to their changing needs and time horizons.
Strategic asset allocation is the primary driver of a target date fund's performance over time, and every target date manager has a different view on which asset classes are strategic and how they should be combined to reach a retirement goal.
- The strategic asset allocation process for Fidelity's target date strategies emphasizes assets that earn a long-term return, display independent attributes in different market environments, and offer durable implementation characteristics.
- Managing capital market uncertainty and trade-offs among different investment exposures is central to our investment process.
Each regime displays distinct volatility characteristics
Annualized Volatility within Each Market Regime, 1926–2022.
Volatility: the variability of an asset or asset class's historical returns. Asset classes: U.S. equity; non-U.S. equity; U.S. investment-grade (IG) bonds; long-term (10+ years) Treasuries (Long Govt), shorter- and longer-term Treasury Inflation-Protected Securities (TIPS); and international bonds (hedged to USD); and short-term debt (cash). Data from Fidelity's proprietary machine-learning framework for the four structural regimes over time. See appendix for asset class and index definitions, as well as other important information. Source: Fidelity Investments; data 1926-2022.
Fidelity's target date glide path: a research-driven approach
Throughout participants' evolving time horizons, the glide path is a primary driver of outcomes and reflects an investment manager?s beliefs about strategic asset allocation, including asset class selection and trade-offs between risk and return.
- Our unique insights on retirement goals and savings behaviors of target date participants are central to understanding their individual needs and risk tolerance.
- The investment research that supports the glide path considers historical and forward-looking perspectives on capital markets.
- We evaluate and synthesize research from multiple analytical frameworks to assess and balance the impact of various risks on retirement outcomes.
The glide path investment process combines insights on investor needs and risk tolerance with capital market views.
For illustrative purposes only. Source: Fidelity Investments.
Is your "index" target date fund performing like its index?
Investors in an index target date fund (TDF) should expect performance that closely tracks a composite benchmark that represents the fund's strategic asset allocation.
- Our review of realized performance among several prominent index TDFs shows that some managers have delivered on this expectation more effectively than others.
- In our view, managers have realized disparate outcomes primarily because of differences in implementation processes, capabilities, and skill.
- The implementation process for a TDF includes two key components that require investment insights and skill: (1) establishing a composite benchmark and (2) management of the portfolio.
Not all index target date funds track their benchmarks in similar fashion.
For illustrative purposes only. Past performance is no guarantee of future results. Source: Fidelity Investments; data as of 8/31/22.
Fidelity target date strategies
Discover what sets Fidelity apart from other target date providers by exploring our extensive target date series.
Learn MoreRelated Insights
- Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss.
- Fidelity Commingled Pools are only available to eligible retirement plans.
- Investment performance of the Target Date products depends on the performance of the underlying investment options and on the proportion of the assets invested in each underlying investment option. The investment risk of each Target Date strategy changes over time as its asset allocation changes. These risks are subject to the asset allocation decisions of the portfolio manager. Except for the Target Date Index products, pursuant to the portfolio manager's ability to use an active asset allocation strategy, investors may be subject to a different risk profile compared to the portfolio's neutral asset allocation strategy shown in its glide path. The portfolios are subject to the volatility of the financial markets, including that of equity and fixed income investments in the U.S. and abroad, and may be subject to risks associated with investing in high-yield, small-cap, commodity-linked and foreign securities. The Target Date Blend and Index portfolios are subject to the risks associated with investing in a passively managed underlying investment options in which the passively managed underlying investment option's performance could be lower than an actively managed product that shifts its portfolio assets to take advantage of market opportunities or lessen the impact of a market decline or a decline in the value of one or more issuers. Fixed income investments entail issuer default and credit risk, inflation risk, and interest rate risk (as interest rates rise, bond prices usually fall and vice versa). This effect is usually more pronounced for longer-term securities. Leverage can increase market exposure, magnify investment risks, and cause losses to be realized more quickly. No target date strategy is considered a complete retirement program and there is no guarantee any single offering will provide sufficient retirement income at or through retirement. Principal invested is not guaranteed at any time, including at or after the portfolio' target dates.