The Powerful Forces Reshaping Strategic Asset Allocation

How a new regime with sometimes unexpected motives could influence productivity and fundamentally reshape the investment-decision process.

Download the Executive Summary   Download the Abridged Paper

Dirk Hofschire shares his insights on trends and X-factors that could change investor views on strategic allocations.

A Strategic Allocator's Guide to Productivity and Profits

We have transitioned to a new, more volatile and inflationary regime. In this new environment, a deep understanding of productivity gains, and their links to profits and asset-class returns, could redefine strategic allocations and the investment decision-making process.

The investment implications of global debt outlined in our report "Unsustainable Global Debt: Roadmap for Strategic Asset Allocation" provides key context for the new regime.

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Artificial intelligence: An X-factor in a new investment regime

New research from Fidelity's Asset Allocation Research Team analyzes the potential long-term economic boost from Artificial Intelligence (AI) and what it may mean for investors.

Could AI drive a productivity boom that reshapes the global economy? How should investors think about AI as both a current theme and a long-term game-changer?

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Two decades of strong globalization, then a pandemic... where are we today?

The age of peak globalization likely will have implications for global equity markets, active management, and finding investment ideas.

Understanding the shifting dynamics of global trade, manufacturing and supply chains may provide an edge to active managers.

  • Investment opportunities in the peak globalization era may include efficiency plays—both companies making efficiency possible and companies employing efficiency measures.
  • Nearshoring supply chains and manufacturing may offer compelling investment opportunities across industries.

Learn more about active management amid shifting global dynamics.

Trade globalization has reached a peak

5% 10% 15% 20% 25% 30% 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 Global Imports/GDP

Strategic Investment Opportunities with X-Factors Tied to Geopolitics and Deglobalization

As the world's nations choose sides—or don't—new opportunities and risks will take shape as the global stage is reset.

  • A need for innovation could drive productivity.
  • Massive demand for machinery, automation, and construction materials, might arise.
  • Second- and third-derivative investment ideas related to these massive trends might prove to be strong investments for the next 10 to 20 years.

Learn more about deciphering strategic investment opportunities in a complex new world order.

In this commentary, Sammy Simnegar, a portfolio manager in our Equity division, discusses strong tailwinds he sees around a multiyear theme tied to deglobalization and geopolitics—namely, a megatrend that ties together manufacturing and technology.

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Loosely defined geopolitical blocs may define the new era

Opponents ofwestern democracy(autocracies,state intervention)ChinaRussiaIranNorth KoreaBelarusVenezuelaCubaDefenders ofwestern democracy(democracies, free markets)U.S.Core EU/Western EuropeUK, Canada, Australia,New ZealandJapanSouth KoreaTaiwanNonaligned(Mixed political and economic regimes)HungaryPolandBrazilMexicoChileIndiaTurkeySaudi ArabiaIsraelKenyaSouth AfricaVietnamIndonesiaPakistanThailandCross-Border ExposuresOverlap = Direct cross-border exposure(Exports, imports, capital, supply chains)High riskLow risk

Gain Insights on the Trends and Drivers of the New Regime

Productivity is fundamental to the long-term economic and investment outlook, and a key source of profit opportunities.

  • Productivity growth and profit growth have diverged.
  • Can productivity regain momentum?
  • Can profits continue to rise without productivity gains?
  • Our research reveals what the road ahead may look like.

Download the full report to learn about all the relevant trends.

Will this trend continue?

Real productivity growth vs. real profit growth

1.9%2.9%1.1%6.5%0%1%2%3%4%5%6%7%ProductivityProfitsAnnualized growthLong-term average (1950–2021)Last decade (2012–2021)

Extrinsic X-Factors That Could Influence Corporate and Policymaker Behavior

Two secular trends are well established and likely to continue to gain momentum in the coming years.

  • The physical risks from climate change represent rising costs to the global economy.
  • Efforts to mitigate these costs and to transition to cleaner energy (decarbonization) represent potential opportunities.
  • Efforts to address these risks and transition to cleaner energy represent potential opportunities.

There are many more extrinsic X-factors. Download the full report to learn what they are—and what they could mean.

Strategic industries will likely be more influenced by geopolitics

NonstrategicHigh riskLow riskStrategicNonstrategicInfo tech, defenseSemis/tech hardwareStrategic materialsAerospace, satellitesAI, quantum computingCyber/dataRare earthsConsumer goods, light manufacturingFungible commodities, pharma, banksIndustrials, cap goods

The Potential Return of Capital Investment

  • We believe public investment and capex have the potential to rise from depressed levels, representing upside for productivity growth.
  • Fading profit tailwinds from globalization, market concentration, and financial repression imply a slowing from the above-average pace of profit growth, with a potential rise in productivity growth to help offset that dynamic.

Take a deeper dive into the research that could dramatically change your views on strategic allocations.

Higher capex could boost productivity growth above baseline expectations

Scenarios of Capex and Productivity Trends, 5-Year Averages

% annualized growth, 5-year average0%1%2%3%4%196519751985199520052015202520352045Stable CAPEXRising CAPEX

About the Authors

Fidelity's Asset Allocation Research Team (AART) employs a multi-time-horizon framework that incorporates economic, policy, behavioral, and market research to produce multi-asset class investment recommendations. This framework helps asset allocators make strategic decisions for both the long and short term. Our approach accounts for the interplay of multiple dimensions of qualitative and quantitative research within portfolio construction design. By maintaining a disciplined process that helps avoid short-term market noise, we help investors identify impending market inflection points, find opportunities for excess return, and mitigate downside risk.

AART's work on the reconnection of productivity and profits explores factors we believe are contributing to a new long-term market environment.

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A Strategic Allocator's Guide to Productivity and Profits

Download the Executive Summary   Download the Abridged Paper

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