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.

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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. Is your portfolio prepared for the potential effects of an unexpected twist in global productivity?

Uncover the opportunities this new environment could present.

Increased capex potential

What could happen: Increased investment spending in many developed and some emerging markets. Potential winners include "non-aligned" emerging and frontier markets that can create a favorable investment environment. There are more potential winners, too.

Greater diversification

What could happen: Greater opportunities to diversify portfolios according to geography. Rising regionalization and self-sufficiency could reduce the dominance of global cycles or trends.

A wider group of winners across asset classes

What could happen: A broader range of winners and losers across multiple asset categories. Allocations could be tilted toward or away from exposures to big themes such as climate or globalization, and identifying industries and companies that could benefit from increased capex may be a good place to start.

Transformation intersects with productivity and profits

What could happen: Decarbonization and the transition to cleaner energy represents a technological transformation and may be a secular positive for both productivity and profits. There may be longer-term, underappreciated economic gains and an array of beneficiaries whose breadth might extend beyond industries at the center of the transition.

Webinar Replay

Hear the authors discuss strategic asset allocation opportunities in this P&I webinar.

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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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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

Proprietary Frameworks Provide Deeper Insights

The economic and investment implications of higher geopolitical and deglobalization risks will vary significantly by region, country, industry, and company. To better understand risks and opportunities at the country and industry level, we evaluate them using proprietary frameworks. Here's a small sample of that analysis:

  • Relatively solid productivity outlook thanks to some catch-up potential and progress on structural factors.
  • Nonaligned country with a rich resource base, including strategically desirable minerals, implies a relatively low level of geopolitical and deglobalization risk.

Learn what our frameworks reveal about countries and sectors.


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

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