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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—delivering superior value to clients.
Latest Target Date Perspectives—Fulcrum Issues
Fulcrum Issues serves as a forum for Fidelity's Target Date Team to highlight topics that we believe are important for multi-asset class investors to consider when making investment decisions. In our most recent installment of Fulcrum Issues, we explore one of the core issues investors are grappling with today: The trajectory of short-term interest rates and whether monetary policy has reached an inflection point.
Are we there yet? Monetary policy, investor expectations, and relative return opportunities
Investors across the globe have been focused on figuring out when central banks will pivot from inflation-combating rate hikes to growth-boosting rate cuts. But have come to very different conclusions: Our analysis of investor expectations as revealed by short-term interest rates suggests substantial gaps in expectations across asset classes, which presents a compelling relative investment opportunity.
Rate expectations: Charting the cycle
- While rate expectations have moved lower over time, there have been cycles around them—when moving higher, expectations are moving closer to an inflection point.
- Our proprietary measure of investor expectations for rest rate policy as derived from the eurodollar futures market suggests we are moving closer to an inflection point, particularly when compared to history—asset classes appear to embed disparate views, suggesting opportunity.
Will this trend continue?
Real productivity growth vs. real profit growth
Source: Bloomberg Finance L.P., as of March 31, 2023.
Read Prior Fulcrum Issues
Defining and Selecting Strategic Asset Exposures for Target Date Investors
Fidelity's target date strategies provide diversification by asset class and market environment and focus on participants' needs and sensitivities.
- Fidelity's strategic allocation process emphasizes long-term return, independent and unique diversification attributes, and durable implementation characteristics.
- Our research frameworks provide insight into how asset classes behave during distinct market regimes and in response to a common set of risk factors.
- Concerns over higher global debt and lower GDP growth reinforce the need for diversification across market regimes.
Our proprietary regimes' framework identifies five distinct market environments, relevant risk scenarios, and opportunities to improve portfolio diversification
Five Historical Market Regimes, 1950–2019
Research uses a Hidden Markov Model with Gaussian Mixtures (part of Fidelity's proprietary artificial intelligence and machine-learning methodology).
See appendix for information on the technical framework as well as other important information. Source: Fidelity Investments; data 1/1/50 through 8/31/19.
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.
Why Fidelity Target Date Strategies Could Be the Right Fit
Learn about key criteria to help you evaluate providers and how Fidelity measures up.
Learn MoreRelated Insights
- 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.