First Quarter 2013 QUARTERLY MARKET UPDATE First Quarter 2013 QUARTERLY MARKET UPDATE This report is

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Transcript of First Quarter 2013 QUARTERLY MARKET UPDATE First Quarter 2013 QUARTERLY MARKET UPDATE This report is

  • First Quarter 2013 QUARTERLY MARKET UPDATE

  • Table of Contents

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    This report is a product of Fidelity’s Asset Allocation Research Team (AART) with contributions from throughout Fidelity’s asset management organization. AART conducts economic, fundamental, and quantitative research to develop asset allocation recommendations for Fidelity’s portfolio managers and investment teams. AART is responsible for analyzing and synthesizing investment perspectives across Fidelity’s asset management unit to generate insights on macroeconomic and financial market trends and their implications for asset allocation. Primary contributors include Lisa Emsbo-Mattingly (Director of Asset Allocation Research), Dirk Hofschire (SVP, Asset Allocation Research), Miles Betro (Senior Analyst, Asset Allocation Research), and Craig Blackwell (Analyst, Asset Allocation Research).

    MARKET SUMMARY 1.

    THEME: U.S. HOUSING 2.

    ECONOMY/MACRO BACKDROP 3.

    U.S. EQUITY MARKETS 4.

    INTERNATIONAL EQUITY MARKETS & GLOBAL ASSETS 5.

    FIXED-INCOME MARKETS 6.

    ASSET ALLOCATION THEMES 7.

  • Market Summary

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    Market Summary: 2012 Recap, 2013 Outlook The global economy enters 2013 on better footing than one year ago, boosted by a reacceleration in China. Despite still significant policy risks and richer valuations of some riskier asset categories, the outlook for more economically sensitive assets is bolstered by accommodative monetary policies, modest inflationary pressures, and a more favorable global cycle.

    Past performance is no guarantee of future results.

    • Weak global economy – U.S. in better phase (mid-cycle) – China worse & rising risks – Europe recessionary

    • Moderating inflation pressures • Shift toward monetary easing • Policy uncertainty key potential

    source of volatility

    • Reasonable valuations for risky assets

    • Negative for commodities and trade-dependent economies

    • Macro-driven, correlated financial markets

    • Favor U.S. economically sensitive assets

    • Same but improving trend – Same but some late-cycle risks – China exiting growth recession – Same but systemic risk falling

    • Same • High level of stimulus ongoing • Same with U.S. fiscal debate on

    front burner in Q1

    • Same though credit more fully valued

    • China recovery may boost these areas for a while; upside limited

    • Lower correlations; expect fiscal progress could solidify this trend

    • Favor economically sensitive assets

    BEGINNING 2012 BEGINNING 2013 TRENDS

    IMPLICATIONS

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    Risk Meter: U.S. Stock Minus Treasury Bond Returns, 1982–2012

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    Asset Market Performance Asset prices experienced broad-based gains during 2012. Most economically sensitive asset categories achieved double- digit returns, and the fourth-quarter rally in non-U.S. equities pushed them toward the top of the performance rankings for the year. The risk meter was in the top 35% of most positive quarters during the past 30 years.

    Calendar-Year Return Difference (%)

    Past performance is no guarantee of future results. You cannot invest directly in an index. See appendix for important index information. Assets represented by: Non-U.S. Small-Cap Stocks – MSCI EAFE Small Cap Index; Real Estate Stocks – NAREIT Equity Only Index; Emerging-Market Stocks – MSCI EM Index; Emerging-Market Bonds – JPMorgan EMBIG+ Index; Non-U.S. Developed-Country Stocks – MSCI ® EAFE Index; U.S. Mid-Cap Stocks – Russell Midcap Index; U.S. Small-Cap Stocks – Russell 2000 Index; U.S. (Large-Cap) Stocks – S&P 500 Index; High-Yield Bonds – Bank of America Merrill Lynch ® (BofA ML) High Yield Master II Index; U.S. Corporate Bonds – Barclays Credit Index; Gold – Gold Bullion, London PM Fix; Investment-Grade Bonds – Barclays U.S. Aggregate Bond Index; U.S. Treasury Bonds – Barclays® Treasury Index; Commodities – DJ-UBS Commodity Index. Source: FactSet, Wall Street Journal, Haver Analytics, Fidelity Investments (AART) as of 12/31/12.

    Risk Off

    Risk On

    2012 (%) Q4 2012 (%) 2012 (%) Q4 2012 (%)

    Non-U.S. Small-Cap Stocks 20.4 6.0 U.S. Large-Cap Stocks 16.0 -0.4

    Real Estate Stocks 19.7 3.1 High-Yield Bonds 15.6 3.2

    Emerging-Market Stocks 18.6 5.6 U.S. Corporate Bonds 9.4 1.1

    Emerging-Market Bonds 18.5 3.3 Gold 8.3 -6.7

    Non-U.S. Developed-Country Stocks 17.9 6.6 Investment-Grade Bonds 4.2 0.2

    U.S. Mid-Cap Stocks 17.3 2.9 U.S. Treasury Bonds 2.0 -0.1

    U.S. Small-Cap Stocks 16.3 1.9 Commodities -1.1 -6.3

    Presenter Presentation Notes The risk meter is a simple way of summarizing whether investors were in “risk on” mode (preferring equities) or “risk off” mode (preferring safer Treasury bonds).

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    Narrow Performance Dispersion across Asset Categories While mostly positive, 2012 asset returns were clustered in a tight range relative to historical averages. The gap between the best and worst performing of eight major asset classes was the narrowest in the past 22 years, while return dispersion among different country equity indices was only half as wide as historical norms.

    Dispersion of Calendar-Year Returns, 1990–2012

    Largest Average 2012 Largest Average 2012 Largest Average 2012

    Asset Class Returns U.S. Equity Sector Returns Country Equity Returns

    Narrowest 3rd

    Narrowest Narrowest

    76% 46% 21% 743% 157% 76% 106% 35% 24%

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    Asset class returns represented by: Investment-Grade Bonds – Barclays U.S. Aggregate Bond Index; High-Yield Bonds – BofA ML U.S. High Yield Master II Index; U.S. Small Cap Stocks – Russell 2000 Index; Real Estate Stocks – NAREIT Equity Only Index; U.S. Large Cap Stocks – S&P 500 Index; Non-U.S. Developed Country Stocks – MSCI EAFE Index; Emerging-Market Stocks – MSCI Emerging Markets Index; Commodities – DJ-UBS Commodity Index. Country equity returns represented by country sub-indices of MSCI ACWI Index; please see appendix for list of countries. U.S. equity sectors represented by MSCI USA Investable Market Index sectors. Source: Morningstar EnCorr, FactSet, Fidelity Investments (AART) as of 12/31/12.

    Presenter Presentation Notes In 2012, the best performing asset was Real Estate Stocks, gaining 20%, while the worst performer was commodities, falling 1%. The country with the best performing equity market was Turkey, gaining 65% in 2012, while the worst performer was Morocco, falling 11% over the year. The best performing U.S. equity sector was Financials, gaining more than 26%, while Utilities lagged the most, rising only 2%. U.S. equity sectors are here represented by the sectors, as defined by GICS, in the MSCI USA IMI Index. The indices with the largest spreads for each return dispersion chart are as follows: Asset Class Returns widest spread was in 1993 Best performer was Emerging-Market Stocks, up 60% Worst performer was Commodities, down 6% Country Equity Returns widest spread was in 1993 Best performer was Poland, up 754% Worst performer was USA, up 10% U.S. Equity Sector Returns widest spread was in 1999 Best performer was Information Technology, up 91% Worst performer was Consumer Staples, down 16%

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    Muted Volatility in 2012 By almost any measure, stock volatility declined marke