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.
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Charting valuations

MSCI China P/E Next Twelve Months

6 8 10 12 14 16 18 Jan-14 Jan-16 Jan-18 Jan-20 Jan-22 Jan-24

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.
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Each regime displays distinct volatility characteristics

Annualized Volatility within Each Market Regime, 1926–2022.

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Falling Rates (38% of History) Rising Rates (43% of History) Deflationary Stress (9% of History) Inflationary Stress (11% of History) U.S. Long Tsy U.S. Equity U.S. TIPS Short Intl Equity U.S. TIPS Long U.S. IG Intl Sov Debt U.S. Int Tsy U.S. Short-Term 16% 16% 11% 11% 41% 15% 22% 13% 4% 3% 2% 7% 7% 6% 6% 6% 4% 4% 6% 5% 5% 4% 9% 13% 10% 8% 5% 7% 5% 11% 11% 4% 1% 1% 3% 3%

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.
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The glide path investment process combines insights on investor needs and risk tolerance with capital market views.

InvestorNeeds andBehaviorsCapitalMarketViewsGlide PathInvestor characteristics (e.g.,savings rates, account balances, planning horizon)Long-term attributes of asset classesAnalysis ofreturns in marketenvironments, states, and cyclesForward-lookingdrivers and catalystsof asset pricesRetirementincome goalsTime horizon andrisk tolerance

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.
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Not all index target date funds track their benchmarks in similar fashion.

Aug 2017 Aug 2018Aug 2019Aug 2020Aug 2021Aug 2022-1.4-1.2-1-0.8-0.6-0.4- AManager BManager C

Fidelity target date strategies

Discover what sets Fidelity apart from other target date providers by exploring our extensive target date series.

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