The fund seeks to maximize total returns. It will, in theory, do that by making top-down judgments about the short- and long-term attractiveness of all available asset classes (domestic, international and emerging markets equities; domestic, international, emerging markets, high yield, investment grade and inflation protected bonds, floating rate loans, and ETNs; and up to 25% commodities). It will then allocate its resources to some combination of Fidelity funds, a Fidelity-owned commodities fund based in the Cayman Islands, exchange-traded funds and notes, and “direct investments.” They highlight the note that they might place “a significant portion of the fund’s assets in non-traditional assets” including market-neutral funds.
Fidelity Management & Research Company, the investment advisor to all 300 Fidelity mutual funds. Fidelity employs (give or take a layoff or two) 500 portfolio managers, analysts and traders and has $1.4 trillion in assets under management.
Jurrien Timmer and Andrew Dierdorf. Mr. Timmer has been Fidelity’s Director of Market Research for the past 12 years and is a specialist in tactical asset allocation. Mr. Dierdorf is a relative newcomer to Fidelity and co-manages 24 of Fidelity’s Freedom funds.
Management’s Stake in the Fund
Mr. Dierdorf has between $50,000 – 100,000 in the fund and Mr. Timmer had invested between $500,000 and $1,000,000. Only two of the fund’s nine trustees (Albert Gamper and James Keyes) had large investments in the fund while six (including Abby Johnson) had nothing. Fidelity’s directors make between $400,000 – 500,000 per year (sign me up!) and their compensation is pro-rated over the number of funds they oversee; as of the most recent SAI, each director had received $120 in compensation for his or her work with this fund.
November 1, 2007.
$2500 for a regular account and $500 for an IRA.
1.00% on assets of $450 million.
From 2007 through June 2011, this was the Fidelity Dynamic Strategies Fund. It was rechristened as Global Strategies on June 1, 2011. The fund also adopted a new benchmark that increases international equity and bond exposure, while decreasing US bond and money market exposure:
|Dynamic Strategies benchmark||Global Strategies benchmark|
|50% S&P 500||60% MSCI All Country World|
|40% Barclays US bond index||30% Barclays US bond|
|10% Barclays US-3 Month T-bill index||10% Citigroup Non-US G7 bond|
Here’s the theory: Fidelity has greater analytic resources than virtually any of its competitors do. And it has been moving steadily away from “vanilla” funds and toward asset allocation and niche products. That is, they haven’t been launching diversified, domestic mid-cap funds as much as 130/30, enhanced index, frontier market, strategic objective and asset allocation funds. They’ve been staffing-up to support those projects and should be able to do an exceptional job with them.
Fidelity Global Strategies is the logical culmination of those efforts: like Leuthold Core (LCORX) or PIMCO All-Asset (PAAIX), its managers make a top-down judgment about the world’s most attractive investment opportunities and then move aggressively to exploit those opportunities.
My original 2008 assessment of the fund was this:
In theory, this fund should be an answer to investors’ prayers. In practice, it looks like a mess . . . Part of the problem surely is the managers’ asset allocation (mis)judgments. On June 30 (2008), at the height of the recent energy price bubble, they combined “high conviction secular themes – commodities . . . our primary ‘ace in the hole’ for the period” with “our conviction, and our positive view on energy and materials stocks” to position the portfolio for a considerable fall.
Those errors had to have been compounded by the sprawling mess of a portfolio they oversee . . . The fund complements its portfolio of 38 Fidelity funds (28 stock funds, six bond funds and 4 money market and real estate funds) with no fewer than 75 exchange-traded funds. In many cases, the fund invests simultaneously in overlapping Fidelity funds and outside ETFs.
The bottom line:
At 113 funds, this strikes me as an enormously, inexplicably complex creation. Unless and until the managers accumulate a record of consistent downside protection or consistent up-market out-performance, neither of which is yet evident, it’s hard to make a case for the fund.
Neither the experience of the last two years nor the recent revamping materially alters those concerns.
Since inception, the fund has not been able to distinguish itself from most of the plausible, easily-accessible alternatives. Here’s the comparison of $10,000 invested at the opening of Dynamic Strategies, compared with a reasonable peer group.
|Vanguard Balanced Index (VBINX), an utterly vanilla 60/40 split between US stocks and US bonds||10,800|
|Vanguard STAR (VGSTX), a fund of Vanguard funds with a pretty static stock/bond mix||10,700|
|Fidelity Global Balanced (FGBLX)||10,800|
|Morningstar benchmark index (moderate target risk)||10,900|
In short, the fund’s ability to actively allocate and to move globally has not (yet) outperformed simple, low-cost, low-turnover competitors. In its first 13 quarters of existence, the fund has outperformed half the time, underperformed half the time, and effectively tied once. More broadly, that’s reflected in the fund’s Sharpe ratio. The Sharpe ratio attempts to measure how much extra return you get in exchange for the extra risk that a manager chooses to subject you to. A Sharpe ratio greater than zero is, all things being equal, a good thing. FDYSX’s Sharpe ratio is 0.34, not bad but no better than its benchmark’s 0.36.
The portfolio continues to be large (24 Fidelity funds and 45 ETFs), though much improved over 2008. It continues to
By way of example:
- The fund holds three of Fidelity’s emerging markets funds (Emerging Markets, China and Latin America) but also 14 emerging markets ETFs (mostly single country or frontier markets). It does not, however, hold Fidelity’s Emerging EMEA (FEMEX) fund which would have been a logical first choice in lieu of the ETFs.
- The fund holds Fidelity’s Mega Cap and Disciplined Equity stock funds, but also the S&P500 ETF. For no apparent reason, it invests 1% of the portfolio in the Institutional class of the Advisor class of Fidelity 130/30 Large Cap. In consequence, it has staked a bold 0.4% short position on the domestic market. But why?
The recent changes don’t materially strengthen the fund’s prospects. It invests far less internationally (15%) than it could and invests about as much (20%) on commodities now as it will be able to with a new mandate. The manager’s most recent commentary (“Another Fork in the Road,” 04/28/2011) foresees higher inflation, lax Fed discipline and an allocation with is “neutral on stocks, short on bonds, and long on hard assets.” The notion of a flexible global allocation is certainly attractive. Still neither a new name nor a tweaked benchmark, both designed according to Fidelity, “to better reflect its global allocation,” is needed to achieve those objectives.
I have often been skeptical of Fidelity’s funds and have, I blush to admit, often been wrong in that skepticism. Undeterred, I’m skeptical here, too. As systems become more complex, they became more prone to failure. This remains a very complex fund. Investors might reasonably wait for it to distinguish itself in some way before considering a serious commitment to it.
© Mutual Fund Observer, 2011. All rights reserved. The information here reflects publicly available information current at the time of publication. For reprint/e-rights contact [email protected].