-
Second Quarter 2015 QUARTERLY MARKET UPDATE
-
ECONOMY/MACRO BACKDROP3.
Table of Contents
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MARKET SUMMARY1.
THEME: IMPACT OF GLOBAL MONETARY POLICIES2.
U.S. EQUITY MARKETS4.
INTERNATIONAL EQUITY MARKETS & GLOBAL ASSETS5.
FIXED INCOME MARKETS6.
ASSET ALLOCATION THEMES7.
This report is a product of Fidelitys Asset Allocation Research
Team (AART), with contributions from throughout Fidelitys asset
management organization. AART conducts economic, fundamental, and
quantitative research to develop asset allocation recommendations
for Fidelitys portfolio managers and investment teams. AART is
responsible for analyzing and synthesizing investment perspectives
across Fidelitys asset management unit to generate insights on
macroeconomic and financial market trends and their implications
for asset allocation.
Lisa Emsbo-MattinglyDirector of Asset Allocation Research
Dirk Hofschire, CFASVP, Asset Allocation Research
PRIMARY CONTRIBUTORS
Austin LitvakSenior Analyst, Asset Allocation Research
Jake Weinstein, CFASenior Analyst, Asset Allocation Research
Caitlin DourneyAnalyst, Asset Allocation Research
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Market Summary
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Overview: Mixed Picture amid Massive Global Policy Easing The
global economy remained lackluster, but a broad-based move toward
even greater monetary easing outside the U.S. pushed down global
bond yields and non-U.S. currencies, while boosting equity markets.
Improvement in developed economies supports the global outlook,
though China weakness is a risk, and Fed tightening could create
market volatility.
FX: foreign exchange. Fed: Federal Reserve. Past performance is
no guarantee of future results.
Slow global growth, better traction in developed economies than
in emerging Slowing in external-oriented U.S.
economic sectors Europe picks up steam Weak commodity prices,
disinflation Anemic global corporate profits
Massive monetary policy easing outside the U.S. Global bond
yields decline Stronger U.S. dollar
Modest improvement in global economy, led by developed markets
U.S. mid-cycle economy sturdy amid bright
consumer outlook and low inflation Europe on the upswing; Japan
exiting
recession Stimulus in China may stabilize economy;
but financial instability worlds biggest risk Fed on track for
2015 rate hike; gradual
pace expected
Q1 2015 TRENDS OUTLOOK Q2 2015MACRO
MARKETS
4
Higher FX and market volatility, but modest positive returns for
most assets
Developed-market, non-U.S. equities rallied
Favor European equities Market volatility likely to increase A
spike in interest rates remains unlikely Oil/commodities slow to
recover Dollar to remain solid but be more mixed
-
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-40-30-20-10
0102030
Dec
-08
Sep
-02
Sep
-01
Jun-
10S
ep-9
0M
ar-0
8S
ep-0
8S
ep-8
6S
ep-9
9Ju
n-12
Jun-
00S
ep-0
0Ju
n-11
Jun-
92S
ep-0
7M
ar-0
5Ju
n-91
Jun-
06S
ep-8
8M
ar-9
4M
ar-1
5Ju
n-08
Dec
-97
Dec
-94
Mar
-93
Jun-
89S
ep-1
4D
ec-0
5S
ep-9
6S
ep-0
6M
ar-8
8D
ec-8
6D
ec-9
1Ju
n-95
Mar
-97
Jun-
14S
ep-9
7S
ep-9
4S
ep-0
5Ju
n-04
Mar
-95
Sep
-13
Dec
-96
Sep
-12
Dec
-06
Sep
-95
Mar
-99
Jun-
87M
ar-9
6D
ec-0
2D
ec-0
4D
ec-8
5M
ar-1
3D
ec-1
3M
ar-9
1Ju
n-03
Dec
-10
Mar
-12
Dec
-99
Mar
-87
Varied Results as Most Assets Rise to Start YearIn a reversal
from 2014, non-U.S. equities led the moderately positive global
equity returns during Q1. Other turnarounds included U.S. small-cap
stocks outpacing large-caps, and high-yield corporate bonds besting
investment-grade bonds. However, Treasuries performed better than
the S&P 500, and commodities slumped further, providing a mixed
overall tone.
5
Q1 2015 (%) 1-Year (%) Q1 2015 (%) 1-Year (%)
Non-U.S. Small-Cap Stocks 5.6 -2.6 Emerging-Market Stocks 2.3
0.8
Non-U.S. Developed-Country Stocks 5.0 -0.5 U.S. Corporate Bonds
2.2 6.7
U.S. Small-Cap Stocks 4.3 8.2 Emerging-Market Bonds 2.1 4.1
Real Estate Stocks 4.0 22.7 Investment-Grade Bonds 1.6 5.7
U.S. Mid-Cap Stocks 4.0 13.7 U.S. Large-Cap Stocks 1.0 12.7
Long Government & Credit Bonds 3.4 15.7 Gold -1.6 -8.1
High-Yield Bonds 2.5 2.1 Commodities -5.9 -27.0
Risk Meter: U.S. Large-Cap Stock minus Treasury Bond Returns,
19852015Quarterly Return Difference (%)
Risk Off
Risk OnMar-15-0.6%
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. See appendix for important
index information. Assets represented by: Commodities Bloomberg
Commodity Index; Emerging-Market Bonds JP Morgan EMBI Global Index;
Emerging-Market Stocks MSCI EM Index; Gold Gold Bullion, LBMA PM
Fix; High Yield Bonds Bank of America Merrill Lynch (BofA ML) High
Yield Bond Index; Investment-Grade Bonds Barclays U.S. Aggregate
Bond Index; Non-U.S. Developed-Country Stocks MSCI EAFE Index;
Non-U.S. Small-Cap Stocks MSCI EAFE Small Cap Index; Real Estate
Stocks FTSE NAREIT Equity Index; U.S. Corporate Bonds Barclays U.S.
Credit Index; U.S. Large-Cap Stocks S&P 500 Index; U.S. Mid-Cap
Stocks Russell Midcap Index; U.S. Small-Cap Stocks Russell 2000
Index; U.S. Treasury Bonds Barclays U.S. Treasury Index. Source:
Bloomberg Finance L.P., Haver Analytics, Fidelity Investments
(AART), as of 3/31/15.
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Source: Bloomberg Finance L.P., Fidelity Investments (AART), as
of 3/31/15.
Global Yield Plunge Pushed Down U.S. Long-Term RatesMost
developed-economy government bond yields hit multiyear lows during
Q1, as central banks in Europe and Japan purchased bonds as part of
their quantitative easing programs. U.S. long-term yields remain
relatively high and attractive for foreign investorsparticularly
with the dollars continued strengthhelping cap the upside potential
for long-term yields.
6
10-Year Government Yields for Major Economies
0.2% 0.4%0.5%
1.2% 1.2% 1.4%1.6%
1.9%
0
1
2
3
4
5
6
7
8
Germany Japan France Spain Italy Canada U.K. U.S.
5-year range Current 5-years ago
Yield (%)
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Theme: Impact of Global Monetary Policies
-
TH
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Global Swing Back to Monetary Policy EasingSpearheaded by
renewed easing in the worlds largest economies outside the U.S.
(eurozone, Japan, and China), at least 30 central banks eased
monetary policy during Q1. While this represented a much more
synchronized policy accommodation cycle than during 2014, the U.S.
Federal Reserves move toward a tightening posture remains a major
dissimilarity.
8For illustrative purposes only. Source: Haver Analytics,
Fidelity Investments (AART), as of 3/31/15.
Tightening
Neutral
Easing
Extraordinary Easing
RussiaBrazil
S. Africa
India
EgyptU.K.U.S.
Canada
AustraliaMexicoTurkey
Thailand
S. KoreaChina
SwitzerlandSwedenDenmarkEuropeJapan
Q42014
Divergences
TurkeyIndiaBrazilEgypt
ChinaS. AfricaMexico
AustraliaRussia
S. Korea
ThailandSwitzerland
SwedenDenmarkJapanEuropeCanadaU.K.U.S.
1H 2009Post-Crisis
Global Easing
BrazilU.S.U.K.
S. Africa Mexico
RussiaEgypt
S. KoreaIndia
Turkey
ThailandCanadaAustralia
SwitzerlandSwedenDenmarkChina
EuropeJapan
Q12015
Return to Easing
Q1 2015 Rate cuts by 30 central banks
-
TH
EME
Policy Divergence Persists, though Fed Expectations SlowThe
planned expansion of central bank balance sheets in Japan and the
eurozone is expected to surpass that of the U.S. and U.K. relative
to the size of their economies. This quantitative easing stands in
contrast to the Feds move toward a tightening posture, but both the
Fed and financial markets now expect a much slower pace of
tightening than in early 2015.
9
0%
10%
20%
30%
40%
50%
60%
70%
80%
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
U.K. Eurozone U.S. Japan
LEFT: Dashed lines represent FMR projections, Source: BOJ, ECB,
Fed, BOE, Bloomberg Finance L.P., Fidelity Investments (AART), as
of 12/31/14. RIGHT: Fed: Federal Reserve. FOMC: Federal Open Market
Committee. Market fed funds rate hike expectations calculated using
daily generic fed funds futures contracts out 36 months. FOMC rate
hike expectations calculated using the weighted average of the
participants of the Federal Reserve Systems appropriate pace of
policy firming survey results. Source: Federal Reserve, Bloomberg
Finance L.P., Fidelity Investments (AART), as of 3/31/15.
Major Central Bank Balance Sheets
% of GDP
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
Fed Fund Futures Market FOMC
FOMC vs. Market Expectations of Fed Tightening Cycle
Q1 2015
Q2 2015Q1 2015
Q2 2015
Expected Fed Funds Rate (%)
-
TH
EME
QE Soaking Up Supply of High-Quality BondsDespite the end of QE
programs in the U.S. and U.K., Japan and the European Central Bank
plan to purchase the equivalent of the entire expected new
government bond issuance of the worlds four largest advanced
economies during 2015. This demand is pushing many bonds into
negative yields, and may also be pushing some investors out the
risk curve into equities.
10
-$1,000
-$500
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015**
Fed ECB BOJ BOE Total
Net Government Bond Issuance Minus Central Bank Purchases*
Billions
*Annual issuance of sovereign bonds excluding the rollover of
existing debt and central bank purchases. CHART: **Barclays
Research projections. Net issuance excludes short-term instruments
and is converted to USD at average currency levels during the year.
Source: Barclays Research, BOJ, ECB, Fed, U.K. Debt Management
Office, Haver Analytics, Fidelity Investments (AART), as of
12/31/14. TABLE: Source: Barclays European Aggregate Index and
Barclays Global Aggregate Bond Index, as of 3/31/15.
% of Bond Universe with Negative Yields
Eurozone 21%Global 6%
-
TH
EME
Policies and Divergences Provoking Currency VolatilityEuropean
QE and Fed neutrality stoked greater fluctuations in exchange rates
and a generally stronger U.S. dollar against most currencies during
Q1.The de-pegging and extreme moves in the Swiss franc illustrate
that while currency volatility should remain high, the dollars
future moves should be less uniform and more mixed against the
worlds major currencies.
11
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Mar
-05
Sep
-05
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Implied Currency Volatility Index
LEFT: Index = Equal-weighted implied volatility versus USD.
Implied volatility measures the market-expected future volatility
of a currency exchange rate from now until the maturity date of the
currency options. 3MMA: Three-month moving average. Source:
Bloomberg Finance L.P., Fidelity Investments (AART), as of 3/31/15.
RIGHT: Source: Bloomberg Finance L.P., Fidelity Investments (AART),
as of 3/31/15.
0.85
0.95
1.05
1.15
1.25
Jan-
14
Feb-
14
Mar
-14
Apr
-14
May
-14
Jun-
14
Jul-1
4
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15
Feb-
15
Mar
-15
USD/CHF Exchange Rate
+22%
YTD vs. USD
Swiss Franc 2.3%Euro -11.2%Yen -0.3%
Swiss FrancPercentile vs. Last Five Years (3MMA)
85%
-
TH
EME
DMs to Benefit from Stronger Dollar More than EMsWeaker
currencies boost export competitiveness and multinational company
profits, which provide a tailwind for developed economies such as
Europe. However, the currency pressure from foreign capital
outflows in many emerging markets can lead to spending FX reserves
or maintaining higher interest rates, both of which create tighter
domestic financial conditions.
12
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70-25%
-15%
-5%
5%
15%
25%
35%
Mar
-05
Sep
-05
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Eurozone Exports to U.S. USD/EUR Exchange Rate
Exchange Rate (Inverted)
Eurozone Exports to the United States
Stronger Dollar
Weaker Dollar
-160
-140
-120
-100
-80
-60
-40
-20
0
Brazil Russia China
6-Month Change
Billions ($)
Policy Rate 12.7% 14.0% 5.3%
FX Rate 1-Year Change -28.9% -39.8% 0.3%
Emerging Market Foreign Reserves
DM = Developed Markets. EM = Emerging Markets. LEFT: 3MMA =
3-month moving average. Exports denominated in euros. Source:
Statistical Office of the European Communities, Haver Analytics,
Bloomberg Finance L.P., Fidelity Investments (AART), exports as of
1/31/15, FX rate as of 3/31/15. RIGHT: Source: International
Monetary Fund, Haver Analytics, Bloomberg Finance L.P., Fidelity
Investments (AART), chart as of 1/31/15; table as of 3/31/15.
Year-over-Year Change (3MMA)
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Economy/Macro Backdrop
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E
CO
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MYGlobal Business Cycle: Growth Slow, DMs Gaining Traction
The global economy continues to grow at a slow pace, with
developed markets benefiting more than emerging markets from
falling oil prices, cheaper non-U.S. currencies, and lower bond
yields. Europe is emerging from its 2014 slowdown into a broader
mid-cycle expansion; the U.S. remains mid-cycle; China remains
late-cycle; and Japan is likely exiting recession.
*For developed economies, we use the classic definition of
recession, involving an outright contraction in economic activity.
For developing economies, such as China, we have adopted a growth
cycle definition because they tend to exhibit strong trend
performance driven by rapid factor accumulation and increases in
productivity, and deviation from trend tends to matter most for
asset returns. DM: Developed Markets. Source: Fidelity Investments
(AART), as of 3/31/15. 14
Business Cycle Framework
-
E
CO
NO
MYU.S. Economy Solid but Gap with Rest of World Narrowing
Modest improvement in the global economy is still being led by
the U.S., but a pickup in activity in developed
economiesparticularly in Europeis closing the gap. The stronger
dollar may be boosting DM industry at the expense of the U.S.,
though EM countries still face cyclical headwinds, including slower
Chinese growth and weak commodity prices.
15
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Leading Economic Indicators: Relative Performance of U.S. vs.
International
DM = Developed Markets. EM = Emerging Markets. Leading economic
indicators are weighted by nominal gross domestic product. Source:
Organisation for Economic Co-operation and Development (OECD),
Foundation for International Business and Economic Research
(FIBER), International Monetary Fund, Haver Analytics, Fidelity
Investments (AART), as of 2/28/15.
LEI Performance 6 Months Ago Latest
U.S. 7.5% 5.0%
DM ex U.S. 0.1% 1.5%
EM -0.2% 0.1%
2015
Difference between U.S. and Rest of World 6-Month Annualized LEI
Change (%)
Rest of World Outlook Brighter
U.S. Outlook Brighter
-
E
CO
NO
MYU.S. Consumer Outlook Improving as Labor Market Tightens
The U.S. labor market added 3.2 million workers in the past
yearthe strongest gain since 2000. Small businesses have started to
raise compensation, and households are finally starting to
anticipate incremental income gains. Together with falling gasoline
prices, a stronger dollar, and muted inflation, the outlook for
real income growth is the brightest in a decade.
16
-10
-5
0
5
10
15
20
25
30
35
40
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
2011 2013 2015
Payroll Employment NFIB Worker Compensation
Employment and Compensation
Other Income Measures 1-Year Ago Latest
Income Growth Expectations 0.8% 1.4%
Real Wages & Salaries 1.8% 4.5%
CHART: NFIB = National Federation of Independent Business.
Shaded area indicates a recession as defined by the National Bureau
of Economic Research (NBER). Source: NBER, NFIB, Bureau of Labor
Statistics, Haver Analytics, Fidelity Investments (AART), as of
2/28/15. TABLE: Household median income growth expectations and
real wages & salaries shown as a three-month averages. Real =
Adjusted for inflation. Source: University of Michigan, Bureau of
Economic Analysis, Haver Analytics, Fidelity Investments (AART), as
of 2/28/15.
Year-over-Year Change (%) % Raising Compensation over Past 3
Months
-
E
CO
NO
MYU.S. External Sectors Soften while Domestic Strengthen
The U.S. dollars strength, muted global demand, and lower oil
prices present headwinds for exports, industrial activity,
energy-related capex, and multinational profits. However, moves in
the dollar and oil prices reinforce the low-inflation, positive
real income outlook for consumers, which should provide a sustained
footing for domestic sectors such as housing.
17
LEFT: Source: Bureau of Economic Analysis, Fidelity Investments
(AART), as of 12/31/14. RIGHT: Source: Fannie Mae as of 12/31/2014
(FICO scores), National Association of Realtors as of 2/28/15
(affordability, months of sales), Bureau of Labor Statistics as of
2/28/15 (unemployment rate), Census Bureau as of 2/28/15 (housing
starts, months of sales), Haver Analytics, Fidelity Investments
(AART), as of 3/31/15.
Concerns Latest Performance
Tight mortgage credit
Slow credit thaw under wayAverage FICO score on approved
loans lower in 2014 than 2013
Higher pricesAffordability still high
Index higher than at any point from 1971 to 2008
Weak new housing demand
Labor market improvingUnemployment rate of 25- to 34-year-olds
fell
to 5.4% from 7.0% one year ago
Tepid construction
activity
Permitting activity positiveSingle-family permit issuance
reaccelerating year over year
U.S. Housing FundamentalsU.S. Corporate Profits
0
100
200
300
400
500
600
700
800
900
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Domestic Foreign
Domestic profits up 165% since 2008
Foreign profits up 7% since 2008
Foreign Profits ($Billions)Domestic Profits ($Billions)
-
E
CO
NO
MY
-60%
-40%
-20%
0%
20%
40%
60%
-60
-40
-20
0
20
40
60
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Consumer Sentiment New Car Registrations
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
-800
-600
-400
-200
0
200
400
600
800
Feb-
11M
ay-1
1A
ug-1
1N
ov-1
1Fe
b-12
May
-12
Aug
-12
Nov
-12
Feb-
13M
ay-1
3A
ug-1
3N
ov-1
3Fe
b-14
May
-14
Aug
-14
Nov
-14
Feb-
15
ECB Balance Sheet (6-month chg) Private Loan Growth
Europe Turning the Cyclical CornerThe eurozone is demonstrating
clear signs of emerging from its 2014 slowdown, into a broader
mid-cycle expansion, buoyed by improving credit and monetary
cycles. Loans to the private sector, as well as the ECB balance
sheet, are rising for the first time since 2012. Improving
sentiment, following years of pent-up demand, has led to increased
purchases of big-ticket items.
18LEFT: Source: ECB, Haver Analytics, Fidelity Investments
(AART), as of 2/28/15. RIGHT: Source: Banco de Espaa, Haver
Analytics, Fidelity Investments (AART), as of 2/28/15.
ECB Balance Sheet vs. Private Credit
Year-over-Year (%)Billions() Year-over-Year (%)
Spanish Demand and Consumer Sentiment
Economic Situation Improving (Net %)
Pent-upDemand
-
E
CO
NO
MYJapans Economy Likely Exiting Recession
For the first time since the mid-2014 negative shock from the
consumption tax hike, Japans economy is showing incipient signs of
recovery, including recent improvement in the inventory cycle. The
corporate sector and the equity market may benefit more than the
household sector from recent policy decisions, including renewed
quantitative easing.
19
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
Feb-
10
Jun-
10
Oct
-10
Feb-
11
Jun-
11
Oct
-11
Feb-
12
Jun-
12
Oct
-12
Feb-
13
Jun-
13
Oct
-13
Feb-
14
Jun-
14
Oct
-14
Feb-
15
ConsumptionTax Hike
Abenomics, QE #1
Inventory-to-Shipments Ratio
Accommodative monetary policy
Quantitative easing by Bank of Japan provides direct and
indirect support to equities
Weak yen Boosts export competitivenessand multinational
profits
Equity market technicals
GPIF and other public institutions raising domestic
equity allocation
Corporatereform
New corporate governance code increases shareholder focus
Corporate and Equity Market Supports
LEFT: Source: Cabinet Office of Japan, Ministry of Economy,
Trade & Industry, Haver Analytics, Fidelity Investments (AART),
as of 2/28/15. RIGHT: GPIF = Government pension investment fund.
Source: Fidelity Investments (AART), as of 3/31/15.
3-Month Moving Average
-
E
CO
NO
MYChina Pressured by Property Weakness, Capital Outflows
Chinas real estate sector is weak, with property prices and
activity measures continuing to deteriorate. Foreign capital
outflows put downward pressure on the currency in recent months.
Renewed stimulus measures may help stabilize conditions in the near
term, but China remains in a slowing trend, as it struggles to
absorb the excesses of its credit and property boom.
20
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Feb-
11
May
-11
Aug
-11
Nov
-11
Feb-
12
May
-12
Aug
-12
Nov
-12
Feb-
13
May
-13
Aug
-13
Nov
-13
Feb-
14
May
-14
Aug
-14
Nov
-14
Feb-
15
China Home Price Diffusion Index70 Cities
5.9
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
Nov
-10
Jan-
11M
ar-1
1M
ay-1
1Ju
l-11
Sep
-11
Nov
-11
Jan-
12M
ar-1
2M
ay-1
2Ju
l-12
Sep
-12
Nov
-12
Jan-
13M
ar-1
3M
ay-1
3Ju
l-13
Sep
-13
Nov
-13
Jan-
14M
ar-1
4M
ay-1
4Ju
l-14
Sep
-14
Nov
-14
Jan-
15M
ar-1
5
Exchange Rate Official Trading Bands
Upper Band
Lower Band
Chinese Renminbi
CNY/USD Exchange Rate (Inverted)
LEFT: Source: China National Bureau of Statistics, Haver
Analytics, Fidelity Investments (AART), as of 2/28/15. RIGHT:
Source: Bloomberg Finance L.P., Fidelity Investments (AART), as of
3/31/15.
% of Cities Rising (Year-over-Year)
1%
-
E
CO
NO
MY
Brazil China
Euro Area
India
Indonesia
Japan
S. Korea
Malaysia
Mexico Poland
Russia
South Africa
Thailand Turkey
U.K. U.S.
-16%
-12%
-8%
-4%
0%
4%
-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40%
45%
Rise in Private Debt and Slower Growth Challenge EMsMany
emerging-market countries have experienced booms in private-sector
credit growth in recent years but now face higher debt burdens at
the same time that nominal GDP growth (the ability to service debt)
has decelerated materially. While many EMs do not have high debt
levels, the ability to cyclically boost growth through credit
expansion is much more constrained.
21
Change in Nominal GDP and Private Credit Growth (2010 vs. 2014)
Non-Financial Private
Credit/GDP
China 196%
S. Korea 186%
Japan 168%
U.K. 162%
Euro Area 161%
U.S. 146%
Malaysia 134%
Thailand 128%
Poland 79%
Brazil 76%
South Africa 74%
Turkey 71%
Russia 69%
India 60%
Indonesia 39%
Mexico 27%
Rising Leverage, Slowing Growth
Rising Growth, Falling Leverage
EMs: Emerging markets. GDP: Gross domestic productthe monetary
value of all the finished goods and services produced within a
country's borders in a specific time period. Ppts: percentage
points. Source: Bank for International Settlements, Official
Country Statistics, Haver Analytics, Fidelity Investments (AART),
as of 12/31/14.
Change in Rate of Nominal GDP Growth
Private Credit/GDP Change (ppts)
-
E
CO
NO
MYOil Oversupply Slowly Ebbing but No Quick Turnaround
Lower oil prices are slowly causing supply-demand fundamentals
to tighten. U.S. oil production is still on track to rise compared
with 2014, but cap-ex plans and supply additions have slowed after
years of exceeding expectations. U.S. and German demand has risen
for the first time in years, though EM demand growth has slowed
materially after years of gains.
22
7
8
9
10
11
12
13
0 10 20 30 40 50 60
2011 2012 2013 2014 2015
Projected vs. Actual U.S. Petroleum Production
Petroleum is crude plus natural gas liquids. DM: Developed
Markets. LEFT: Source: Based on IEA data from the IEA Oil Data
Service OECD/IEA 3/15, IEA Publishing, World Bank Commodity Markets
Outlook, Fidelity Investments (AART), as of 2/28/15. RIGHT: Data
shown as of February each year. OECD = Organisation for Economic
Co-operation and Development. Source: Based on IEA data from the
IEA Oil Data Service OECD/IEA 3/15, IEA Publishing, Fidelity
Investments (AART), as of 2/28/15.
Global Petroleum Demand
20
25
30
35
40
45
50
55
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
OECD Non-OECD Demand Growth Last 12 Mos.
U.S. +380k bpd
Germany +200k bpd
Millions of Barrels per Day (bpd)
2010
2011
2012
2013
2014
2015
2011 Actual
2012 Actual
2013 Actual
2014 Actual
Millions of Barrels per Day (bpd)
-
E
CO
NO
MYOutlook: Market Assessment
Fidelitys Business Cycle Board, composed of portfolio managers
responsible for a variety of asset allocation strategies across
Fidelitys asset management unit, believes that global economic
trends remain divergent, with stabilization and recovery evident in
many developed markets but with late-cycle and recessionary trends
in many emerging markets.
Potential Risks Weakening U.S. profit trends, and a faster-
than-expected improvement in the domestic labor market
China may not be able to manage its slowdown in an orderly
fashion
Asset Allocation Considerations Business cycle constructive for
developed-
market equities Credit-market fundamentals strong More difficult
to identify compelling valuation
opportunities Potential for higher volatility warrants a
tighter
risk budget
Slower pace of U.S. economic improvement
More positive cyclical outlook for developed Europe
First Fed hike likely in second half of 2015; pace to be
gradual
Fed: Federal Reserve. Source: Market Assessment Statement of
Global Asset Allocations Business Cycle Board, Fidelity
Investments, as of 3/31/15. 23
-
Seco
nd Q
uarte
r 201
5Q
UA
RTE
RLY
MA
RK
ET
UP
DA
TE
U.S. Equity Markets
-
U
.S. E
QU
ITYSmall and Mid Caps, Growth Stocks Outperformed
Small-cap stocks led U.S. equity gains during Q1, perhaps in
part due to their lower exposure to global growth headwinds and the
stronger dollar. REITs outperformed, as strong demand boosted the
performance of apartment REITs. Equities should continue to enjoy a
favorable cyclical backdrop, but returns will likely be more muted
than during recent years.
Q1 2015 Total Return
1-Year 8.2% 15.8% 22.7% 13.7% 12.7% 8.9%
4.3%4.0% 4.0% 4.0%
1.0%
-0.5%
Small Caps Growth REITs Mid Caps Large Caps Value
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. All indices are unmanaged.
Please see appendix for important index information. Equity market
returns represented by: Growth Russell 3000 Growth Index; Large
Caps S&P 500 Index; Mid Caps Russell Midcap Index; REITs (Real
Estate Investment Trusts) FTSE NAREIT Equity Index; Small Caps
Russell 2000 Index; Value Russell 3000 Value Index. Source:
FactSet, Fidelity Investments (AART), as of 3/31/15. 25
-
U
.S. E
QU
ITY
1-Year 26.2% 18.3% 4.1% 5.0% 16.5% 18.1% 8.7% 10.0% -11.1% 11.1%
12.7%
Varied Performance Across Equity Sectors The mixed trends in
sector performance from 2014 continued into the first quarter of
2015. Pro-cyclical consumer discretionary stocks were boosted by
the brighter consumer outlook, while the defensive health-care
sector led the gains. Weak oil prices continued to weigh on energy
stocks, while utilities also declined despite the fall in long-term
interest rates.
Q1 2015 Total Return
6.5%
4.8%
1.5%1.0% 1.0% 0.6%
-0.9%
-2.1%-2.9%
-5.2%
1.0%
Health Care ConsumerDiscretionary
TelecomServices
Materials ConsumerStaples
Info Tech Industrials Financials Energy Utilities S&P
500
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. All indices are unmanaged.
Please see appendix for important index information. Sector
investing involves risk. Because of its narrow focus, sector
investing may be more volatile than investing in more diversified
baskets of securities. Sector returns represented by S&P 500
sectors. Source: FactSet, Fidelity Investments (AART), as of
3/31/15. 26
-
U
.S. E
QU
ITYCorporate Profit Growth Slowing but Still Positive
The steady U.S. expansion provides a stable outlook for
corporate revenues. Profit margins may be pressured as cyclical
productivity decelerates amid higher wages and the strong dollar
weighs on foreign sales, but they should stay elevated amid low
input cost inflation and debt service obligations. Mid-single-digit
profit growth (ex-energy) appears achievable.
27
Cyclical productivity: a proprietary measure of U.S. cyclical
corporate productivity; see appendix for definition. CPI: Consumer
Price Index. PPI: Producer Price Index. Inflation is the
year-over-year change in a price index, expressed as a percentage.
Core inflation excludes food and energy prices. Source: Bureau of
Labor Statistics, Haver Analytics, Fidelity Investments (AART),
through 2/28/15.
EarningsMid-Single-Digit Growth
RevenueStable, Slow Growth
Nominal GDP Growth Steady, low-single-digit growth
Profit MarginsHigh and Under Modest Pressure
Cyclical Productivity Efficiency gains continue
Input Costs Input prices contained relative to consumer
prices
Debt Service Low interest expense, debt maturities extended
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Cyclical ProductivityConsumer Inflation minus Producer
Inflation
Earnings & Cyclical Productivity
Core Consumer Inflation minus Core Producer Inflation
Year-over-Year Changein Cyclical Productivity (%)
Positive for Profit Margins
Negative for Profit Margins
-
U
.S. E
QU
ITYEquity Valuations Not an Obstacle for Near-Term Returns
U.S. valuations remain modestly higher than historical averages
by most metrics. However, in the past, price-to-earnings ratios
have showed little correlation with near-term stock performance
(e.g., on a one-year-forward basis). Valuations have proven to be
much more meaningful as an indicator of future returns over longer
time horizons.
28
R = 0.03
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
0 10 20 30 40
P/E vs. 1-Year Forward Real Stock Returns
R = 0.48
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
0 5 10 15 20 25
P/E vs. 20-Year Forward Real Stock Returns
Past performance is no guarantee of future results. Real:
Inflation adjusted. P/E: stock price divided by earnings per share.
R2: a measure of how well a regression line fits the data, ranging
from 0 to 1. Forward returns calculated through 12/31/14. LEFT:
Historical valuation levels: Q4 1926 to 12/31/13. Source: Standard
& Poors, Haver Analytics, Fidelity Investments, as of 2/28/15.
RIGHT: Historical valuation levels: Q4 1926 to 12/31/94. Source:
Standard & Poors, Haver Analytics, Fidelity Investments, as of
2/28/15.
One-Year Forward Real S&P 500 Total Return (since 1926)
20-Year Forward Annualized Real S&P 500 Total Return (since
1926)
5-Year Peak Real Earnings5-Year Peak Real Earnings
-
U
.S. E
QU
ITYDomestic-Centric Sectors May Benefit from Dollar Strength
The stronger dollar and weak overseas growth may prolong the
moderate-growth, low-inflation mid-cycle economic phase, which is
supportive of U.S. equities. The potential benefits may accrue to
more domestic-centric sectors such as consumer discretionary and
financials, which are represented in greater proportion in
small-cap equities than in large caps.
29
0
10
20
30
40
50
60
70
Fina
ncia
ls
Con
s D
isc
Hea
lth C
are
Con
s S
tapl
es
Indu
stria
ls
Ene
rgy
Info
Tec
h
Inde
x
Large Cap Small Cap
International Revenue Exposure by Sector
Past performance is no guarantee of future results. Large Cap:
S&P 500 Index. Small Cap: Russell 2000 Index. Source: FactSet,
Fidelity Investments, as of 12/31/14.
38%
19%
International Sales Share of Total Sales (%)
-
U
.S. E
QU
ITYBusiness and Fed Cycles Affect Equity Sector Leadership
A disciplined business-cycle approach to sector allocation may
produce active returns by favoring industries that may benefit from
cyclical trends. High-dividend-yielding industries typically
underperform around the start of Fed tightening cycles, but begin
to outperform as the economy moves closer to the late cycle.
Business Cycle Approach to Sectors
30
Sector Early Mid Late Recession
Financials + -Consumer
Discretionary ++ --
Technology + + -- --
Industrials ++ + --
Materials -- ++ -Consumer
Staples - + ++
Health Care - ++ ++
Energy -- ++
Telecom -- ++
Utilities -- - + ++-5%
0%
5%
10%
15%
20%
25%
12 Mo.Prior
6 Mo.Prior
3 Mo.Prior
3 Mo.After
6 Mo.After
12 Mo.After
24 Mo.After
Overall Market High Dividend Industry Groups
Start of Fed Tightening Cycle
High Dividend Yielders Performance around Fed Tightening Cycles,
19622010
Past performance is no guarantee of future results. Sectors as
defined by GICS. LEFT: Unshaded (white) portions above suggest no
clear pattern of over- or underperformance vs. broader market.
Double +/ signs indicate that the sector is showing a consistent
signal across all three metrics: full-phase average performance,
median monthly difference, and cycle hit rate. A single +/
indicates a mixed or less consistent signal. Source: The Business
Cycle Approach to Sector Investing, Fidelity Investments (AART),
September 2014. RIGHT: Fed: Federal Reserve. High Dividend
Yielders: Real Estate Investment Trusts (REITS), Utilities, Food
& Staples Retailing, Telecom, Household & Personal Products
and Commercial & Professional Services industry groups. Source:
Standard & Poors, Fidelity Investments (AART), as of
2/28/15.
Average Return (%)
-
Seco
nd Q
uarte
r 201
5Q
UA
RTE
RLY
MA
RK
ET
UP
DA
TE
International Equity Markets & Global Assets
-
IN
TER
NA
TIO
NA
L
10.3%
5.6% 5.0%3.6%
-5.9%
5.3%2.3% 2.0%
-9.5%
-1.6%
-5.9%
Japan EAFESmall Cap
EAFE Europe Canada EM Asia EmergingMarkets
EMEA LatinAmerica
Gold Commodities
Developed-Market Equities Lead, Commodities TrailNon-U.S. equity
markets posted strong local currency returns, but gains were
partially offset by a sustained dollar rally. Japanese and European
equities benefited from monetary policy easing and improving
economic conditions. Weak global demand and oversupply in the oil
markets drove commodity prices down further.
Q1 2015 Total Return
Q1 2015 LC 10.4% 11.1% 11.0% 11.7% 2.9% 5.7% 4.9% 5.7% 1.3% #N/A
#N/A
1-Year USD 12.4% -2.6% -0.5% -4.4% -5.5% 11.1% 0.8% -11.6%
-20.7% -8.1% -27.0%
EM: emerging markets. LC: local currency. All returns are gross
in U.S. dollars unless otherwise noted. Past performance is no
guarantee of future results. It is not possible to invest directly
in an index. All indices are unmanaged. Please see appendix for
important index information. Index returns represented by: Canada
MSCI Canada Index; Commodities S&P GSCI Commodities Index; EAFE
MSCI Europe, Australasia, Far East Index; EAFE Small Cap MSCI EAFE
Small Cap Index; EM Asia MSCI Emerging Markets Asia Index; EMEA
(Europe, Middle East, and Africa) MSCI EM EMEA Index; Emerging
Markets (EM) MSCI EM Index; Europe MSCI Europe Index; Gold Gold
Bullion Price, LBMA PM Fix; Japan MSCI Japan Index; Latin America
MSCI EM Latin America Index. Source: FactSet, Fidelity Investments
(AART), as of 3/31/15.
Developed-Market Equities Emerging-Market Equities
Commodities
32
-
IN
TER
NA
TIO
NA
L
Next 12-Months Estimate
Challenging Profit Cycle for Many Non-U.S. RegionsCorporate
profit growth has decelerated and been disappointing across much of
the world over the past year, though market expectations suggest
improvement in 2015. Developed economies such as Japan and Europe
may have a better chance of benefiting from improving business
cycle dynamics and cheaper currencies, while EM expectations appear
overly sanguine.
33
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep
-13
Nov
-13
Jan-
14
Mar
-14
May
-14
Jul-1
4
Sep
-14
Nov
-14
Jan-
15
Mar
-15
May
-15
Japan EAFE Europe EM
Global Earnings per Share Growth
Past performance is no guarantee of future results. You cannot
invest directly in an index. All indices are unmanaged. EPS:
earnings per share. Forward EPS growth uses estimates for the next
twelve months for: EM MSCI EM Index; Europe MSCI Europe Index;
Japan MSCI Japan Index. EAFE MSCI EAFE Index. Source: FactSet,
Fidelity Investments (AART), as of 2/28/15.
Japan Year-over-Year Trailing EPS Growth Rate Year-over-Year
Trailing and Forward EPS Growth Rate
-
IN
TER
NA
TIO
NA
L
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
300
400
500
600
700
800
900
1000
1100
1200
1300
Feb-
08Ju
l-08
Dec
-08
May
-09
Oct
-09
Mar
-10
Aug
-10
Jan-
11Ju
n-11
Nov
-11
Apr
-12
Sep
-12
Feb-
13Ju
l-13
Dec
-13
May
-14
Oct
-14
Mar
-15
Sharp CurrencyEquity Market Divergence May Not LastDuring the
past year, currencies plunged while equity markets spiked higher in
Europe and Japan. This negative correlation is consistent with
Japans pattern in recent years, but is a major departure from
Europes. The positive relationship between European stocks and the
euro may normalize in the months ahead as both gain support from
the strengthening economy.
34
65
75
85
95
105
115
125400
500
600
700
800
900
1000
Feb-
08Ju
l-08
Dec
-08
May
-09
Oct
-09
Mar
-10
Aug
-10
Jan-
11Ju
n-11
Nov
-11
Apr
-12
Sep
-12
Feb-
13Ju
l-13
Dec
-13
May
-14
Oct
-14
Mar
-15
MSCI Euro Index (Local Currency)
USD/EUR Exchange Rate
BOTH: Source: Bloomberg Finance L.P., Fidelity Investments
(AART), as of 3/31/15.
Euro and European Equities Yen and Japanese EquitiesMSCI Japan
Index (Local Currency)
JPY/USD Exchange Rate (Inverted)
Correlation -0.9Correlation = 0.6
Correlation = -0.7
-
IN
TER
NA
TIO
NA
L
Weak Commodities and China Slowdown Weigh on EMsWidespread price
declines across most categories of commodities, in part due to weak
Chinese demand, act as a headwind for many raw materials producers
in developing economies. Emerging-market equities are vulnerable to
these trends, as the universe is significantly exposed to China and
commodity exporters.
35
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-120%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Commodity Diffusion Index Energy Agriculture
Commodity Prices
LEFT: Commodity diffusion composed of 21 S&P commodity
indices. Energy and agriculture prices represented by the S&P
GSCI Energy and Agriculture sub-indices. Source: Standard &
Poors, Haver Analytics, Fidelity Investments (AART), as of 2/28/15.
RIGHT: Source: FactSet, Fidelity Investments (AART), as of
3/31/15.
Year-over-Year Change % of Commodities Rising over 6 Months
EM Equity Weights
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Commodity Exporters China-related (Asia) Other
20% Other
55% China-Related (Asia)
25% Commodity Exporters
Weight in MSCI EM Index (%)
-
IN
TER
NA
TIO
NA
L
Equity Valuations Rise but Still Relatively AttractiveDue to the
rise in equity prices and subdued earnings growth, valuations rose
across most non-U.S. equity categories during Q1, closer to their
historical averages. Relative to the U.S., price-to-earnings
multiples remain favorable, particularly on a cyclically adjusted
basis, for emerging markets and peripheral Europe.
36
Cyclical P/Es: Price-to-Five-Year Peak Earnings
0 5 10 15 20 25
IrelandPhilippines
MexicoSwitzerland
United StatesIndia
JapanCanada
GermanyAustralia
Developed MarketsDeveloped EuropeEmerging Markets
ItalyUnited Kingdom
ChinaSouth Korea
SpainPoland
BrazilRussia
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. All indices are unmanaged.
Please see appendix for important index information. DM: developed
market. EM: emerging market. Price-to-earnings (P/E) ratio (or
multiple): stock price divided by earnings per share, which
indicates how much investors are paying for a companys earnings
power. EM MSCI Emerging Markets Index; EAFE ex-U.S. MSCI EAFE
ex-U.S. Index; U.S. MSCI USA Index. LEFT: Five-year peak earnings
are adjusted for inflation. Source: FactSet, country statistical
organizations, Haver Analytics, Fidelity Investments (AART), as of
2/28/15. RIGHT: Forward P/E valuations are price divided by
next-twelve-months earnings estimates. Source: FactSet, Fidelity
Investments (AART), as of 3/31/15.
13.7x
16.7x
5
10
15
20
25
30
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
EM EM Long-Term AverageEAFE EAFE Long-Term Average
Forward 1-Year P/E
DM (ex-U.S.) 15.6xEM 11.4x
Trailing 12-Month P/E Ratios
-
IN
TER
NA
TIO
NA
L
Secular Global Growth Forecast Favors Emerging MarketsWhile many
emerging-market economies face significant cyclical headwinds over
the short and intermediate term, our long-term outlook projects
emerging economies to generate higher GDP growth rates than
advanced economies. This provides a favorable secular backdrop for
EM asset markets and supports global portfolio diversification.
37
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
Japa
n
Ger
man
y
Italy
Net
herla
nds
Spa
in
Can
ada
Fran
ce
Sw
eden
Aus
tralia
U.K
.
U.S
.
Rus
sia
Sou
th K
orea
Thai
land
Sou
th A
frica
Mex
ico
Peru
Braz
il
Chi
na
Mal
aysi
a
Turk
ey
Col
ombi
a
Indo
nesi
a
Phi
lippi
nes
Indi
a
Global Growth Rate = 2.1%
Real GDP Growth Forecast, 20142033Annualized Growth Rate
EM: emerging market. GDP: gross domestic product. Source:
Fidelity Investments (AART), as of 12/31/13.
-
IN
TER
NA
TIO
NA
L
More Active Opportunities amid Lower CorrelationsIntra-stock
correlations remained lower than the elevated average over the past
few years, benefiting from lower systemic global risk and economic
divergence across countries. Lower correlations provide more
opportunities for active security selectionparticularly in non-U.S.
markets, where correlations have drifted nearer to their pre-2007
average levels.
38
Equity Market Intra-Stock Index Correlations
Median 60-Day Asset Class Pair-wise Correlations
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
MSCI EAFE MSCI EM EAFE Average EM Average
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. All indices are unmanaged.
Please see appendix for important definitions and index
information. Source: Fidelity Investments (AART), as of
2/28/15.
-
Seco
nd Q
uarte
r 201
5Q
UA
RTE
RLY
MA
RK
ET
UP
DA
TE
Fixed Income Markets
-
FI
XE
D IN
CO
MEBroad-Based, Positive Fixed-Income Performance
Falling interest rates and narrowing credit spreads helped
generate positive returns across all fixed-income categories,
particularly longer-duration and lower-credit-quality bonds. Most
bond categories continued to benefit from robust investor demand,
central bank buying, and solid credit fundamentals.
Q1 2015 Total Return
1-Year 15.7% 2.1% 2.2% 6.7% 4.1% 4.7% 5.4% 3.1% 3.7% 5.6% 6.6%
2.2% 5.7%
3.4%
2.5%2.2% 2.2% 2.1%
1.9%1.6%
1.4%1.2% 1.1% 1.0% 0.9%
1.6%
Long
Gov
t&
Cre
dit
Hig
h Y
ield
Leve
rage
dLo
an Cre
dit
EM
Deb
t
CM
BS
Trea
surie
s
TIPS
Age
ncy
MBS
Mun
icip
al
ABS
Agg
rega
te
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. All indices are unmanaged.
Index returns represented by: ABS (Asset-Backed Securities)
Barclays ABS Index; Agency Barclays U.S. Agency Index; Aggregate
Barclays U.S. Aggregate Bond Index; CMBS (Commercial
Mortgage-Backed Securities) Barclays Investment-Grade CMBS Index;
Credit Barclays U.S. Credit Bond Index; EM Debt (Emerging-Market
Debt) JP Morgan EMBI Global Index; High Yield BofA ML U.S. High
Yield Index; Leveraged Loan S&P/LSTALeveraged Loan Index; Long
Government & Credit (Investment-Grade) Barclays Long Government
& Credit Index; MBS (Mortgage-Backed Securities) Barclays MBS
Index; Municipal Barclays Municipal Bond Index; TIPS (Treasury
Inflation-Protected Securities) Barclays U.S. TIPS Index;
Treasuries Barclays U.S. Treasury Index. Source: FactSet, Fidelity
Investments (AART), as of 3/31/15. 40
-
FI
XE
D IN
CO
ME
8
4
10 712 15
25
4
30
36 40
62
0
10
20
30
40
50
60
70
80
90
100
0
1
2
3
4
5
6
7
U.S. AggregateBond
MBS CMBS CorporateInvestment Grade
CorporateHigh Yield
Emerging-MarketDebt
Yields and Credit Spreads Remain LowFalling interest rates
caused bond yields to drop further below their long-term historical
averages during the first quarter. High-yield corporate bond
spreads narrowed during Q1, though they remain wider than last
years cyclical lows. Only emerging-market debt spreads were above
their long-term averages.
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. All indices are unmanaged.
Please see appendix for important index information. Percentile
ranks of yields and spreads based on historical period from 2000 to
2015. MBS: Mortgage-Backed Security; CMBS: Commercial
Mortgage-Backed Security. All categories represented by respective
Barclays bond indices. Source: Barclays, Fidelity Investments
(AART), as of 3/31/15.
Fixed-Income Yields and Spreads
Yield (%) Yield and Spread Percentiles (%)
Credit SpreadTreasury Rates Spread PercentileYield
Percentile
41
-
FI
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D IN
CO
ME
-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
Jun-
13Ju
l-13
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14Fe
b-14
Mar
-14
Apr
-14
May
-14
Jun-
14Ju
l-14
Aug
-14
Sep
-14
Oct
-14
Nov
-14
Dec
-14
Jan-
15Fe
b-15
Mar
-15
Spread Return Rate Return
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
2015
Stocks and Intermediate U.S. Treasury BondsStocks and High Yield
Bonds
Managing Fixed Income Is About More than Interest RatesThe two
main risk-and-return components of bondsrates and spreadstypically
exhibit a negative correlation, but during mid-cycle periods of
uncertain monetary policy this correlation can turn positive and
lead to credit underperformance. Meanwhile, negatively correlated
high-quality bonds provide better diversification of equity risk
within an overall portfolio.
42
High Yield Return Components
Correlation Coefficient of Returns
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. See appendix for important
index information. LEFT: Spread returns: Returns of the Bank of
America Merrill Lynch (BofA ML) U.S. High-Yield Bond Index
attributable to changes in credit spreads. Rate returns: Returns of
the BofA ML U.S. High-Yield Bond Index attributable to changes in
interest rates. Correlation of spreads and rates from 1997 to
present. Source: Bank of America/Merrill Lynch High Yield Index,
Bloomberg Finance L.P., Fidelity Investments (AART), as of 3/31/15.
RIGHT: Source: Bank of America/Merrill Lynch High Yield Index,
Morningstar, Barclays, Bloomberg Finance L.P., Fidelity Investments
(AART), as of 3/31/15.
Stocks and Bonds 3-Year Correlations
Monthly Returns (%)
Long-Term Spread/Rate Correlation = -0.50
Fed Taper Scare
Rate Hike Anticipation
-
FI
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CO
MEBenefits of High-Quality Core in a Multi-Sector Bond
Portfolio
A multi-sector fixed-income strategy with a foundation of
high-quality bonds and the addition of higher-yielding plus sectors
has exhibited consistent downside protection. A core plus portfolio
has generated fewer periods of negative returns than any individual
bond sector, while providing a significantly lower magnitude of
losses than lower-quality sectors.
43
0%
5%
10%
15%
20%
25%
30%
Cor
e Pl
us
IG B
onds
Leve
rage
dLo
ans
U.S
. Gov
t
IG C
orpo
rate
s
EM
Deb
t
Hig
h Y
ield
Sov
erei
gn
1-Year Negative Return Periods, 19982014
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
IG B
onds
U.S
. Gov
t
Cor
e Pl
us
Sov
erei
gn
IG C
orpo
rate
s
EM
Deb
t
Leve
rage
d Lo
ans
Hig
h Y
ield
% of Rolling Periods Total Return (%)
Worst 1-Year Returns, 19982014
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. Index returns represented
by: Emerging Market Debt JPM EMBI Global Composite Index; Foreign
Developed-Country Bonds Citigroup G-7 Non-USD Bond Index; Leveraged
Loans S&P/LSTA Performing Loan Index; U.S. Government Barclays
U.S. Government Index; U.S. High Yield BofA ML High Yield Index;
U.S. Investment Grade Barclays U.S. Aggregate Bond Index. Source:
Morningstar, Fidelity Investments (AART), as of 12/31/14.
Portfolio Description
Core Plus 80% U.S. Investment Grade 10% U.S. High Yield5%
Leveraged Loans 5% Emerging Market
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METIPS: A Relatively Attractive Inflation Hedge
The Treasury markets are pricing in a 1.8% annual rise in
headline CPI over the next 10 years, well below the Feds implied
target of roughly 2.3%. With the U.S. closer to the start of the
more inflationary late-cycle phase than to the start of the more
benign mid-cycle phase it is in today, TIPS may be an attractively
priced hedge against potentially higher inflation.
44
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
FOMC Implied CPI Target TIPS 10-Year Breakeven Inflation
Rate
TIPS Breakeven Inflation vs. FOMC Inflation Target
Past performance is no guarantee of future results. The FOMC
currently projects the long-term personal consumption expenditure
(PCE) deflator to be 2.0%, but TIPS are priced off of the consumer
price index (CPI). CPI has been roughly 30 basis point higher than
PCE since the recession, therefore the FOMCs implied CPI target is
2.3%. Fed: Federal Reserve. FOMC: Federal Open Market Committee.
CPI: Consumer Price Index. TIPS: Treasury Inflation-Protected
Securities. TIPS breakeven inflation rate calculated as difference
between real and nominal 10-year Treasury yields. Source: Federal
Reserve, Bureau of Labor Statistics, Haver Analytics, Fidelity
Investments (AART), as of 3/31/15.
10-Year Median
6-Month Median
Headline CPI 2.1% 1.0%
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MEMuni Valuations Still Favorable; Fundamentals Improving
Although fiscal challenges exist for many municipalities, state
revenues have been improving in recent years, and the positive
growth in property tax revenues is an encouraging sign for
localities. Highly rated municipal bonds continue to offer better
tax-equivalent yields than comparable Treasuries.
45
Past performance is no guarantee of future results. LEFT:
After-tax yields assume the highest tax bracket calculated using
top federal income tax rate for 2013 (39.6%) and Medicare
contribution tax (3.8%). Muni pre-tax yield data uses the Thompson
Municipal Market Data (MMD) AAA Curve. Source: Bloomberg Finance
L.P., Thomson Reuters, Fidelity Investments (AART), as of 3/31/15.
RIGHT: Data shown as four-quarter average. Data not adjusted for
legislative changes. Personal income tax and sales tax represent
state portion only, while property tax reflects state and local
components. Source: U.S. Census Bureau Quarterly Summary of State
and Local Tax Revenue, Fidelity Investments (AART), as of
12/31/14.
0%
1%
2%
3%
4%
5%
6%
30-Yr AAA Muni30-Yr Treasury10-Yr AAA Muni10-Yr Treasury 2-Yr
AAA Muni2-Yr Treasury
Tax-Exempt Yield Tax-Equivalent Yield Treasury Yield
Municipal Bonds vs. Treasuries
Muni Muni MuniTreasury Treasury Treasury
30-Year 10-Year 2-Year -20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2009 2010 2011 2012 2013 2014
Property Tax Sales Tax Personal Income Tax
State and Local Tax Revenues
Yield (%) Change in Revenues since 2009 Peak (%)
-
Sec
ond
Qua
rter 2
015
QU
AR
TER
LY M
AR
KE
T U
PD
ATE
Asset Allocation Themes
-
A
SS
ET
ALL
OC
ATI
ON
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
International Equities: The Case for DiversificationA portfolio
consisting of 70% U.S. and 30% international equities has provided
higher returns, lower volatility, and better risk-adjusted returns
than the S&P 500 over the long run. Though they rose in the
second half of 2014, correlations between U.S. and international
equities have trended down toward prerecession levels, signaling
increased global diversification benefits.
47
Past performance is no guarantee of future results. It is not
possible to invest directly in an index. All indices are unmanaged.
Please see appendix for important index information. CHART:
International Equities MSCI World ex-U.S.; U.S. Equities S&P
500, as of 12/31/14. TABLE: Hypothetical globally balanced
portfolio is rebalanced monthly in 70% U.S. equities, 25%
developed-market (DM) equities, and 5% emerging-market (EM)
equities. U.S. equities S&P 500 Total Return Index; DM equities
MSCI EAFE Index, Morningstar, Global Financial Data (GFD) World
x/USA Return Index; EM equities MSCI EM Index, GFD Emerging Markets
Index. Source: Bloomberg Finance L.P., Fidelity Investments (AART),
as of 3/31/15.
1950 to 2014 S&P 500 InternationalPortfolioGlobally Balanced
Portfolio
70% U.S. / 30% IntlAnnualized Returns 11.3% 10.9% 11.4%Standard
Deviation 14.4% 14.6% 13.1%Sharpe Ratio 0.47 0.43 0.52
Correlations: International and U.S. EquitiesSix-Month Rolling
Correlations of Daily Returns
-
A
SS
ET
ALL
OC
ATI
ON
Late Cycle Often Causes a Key Shift in Asset PerformanceThe U.S.
remains in a mid-cycle expansion. The late-cycle phase has the most
mixed performance of any business cycle phase, with the leadership
of economically sensitive assets typically faltering, and relative
and absolute returns becoming more mixed. Monetary policy often
becomes more neutral during the mid cycle, and outright restrictive
during the late cycle.
48
0%
2%
4%
6%
8%
10%
12%
14%
16%
Stocks High Yield Bonds Cash
Mid-Cycle Asset Class Performance, 19502010Average Annual
Return
Favor Economically Sensitive Assets Monetary policy
accommodative/neutralized Profit growth solid/peaks Credit spreads
narrow
0%
2%
4%
6%
8%
10%
12%
14%
16%
Stocks High Yield Bonds Cash
Late-Cycle Asset Class Performance, 19502010
Mixed Asset Class Performance Monetary policy becomes
restrictive Earnings under pressure Credit spreads widen
Past performance is no guarantee of future results. Fidelity
Investments proprietary analysis of historical asset class
performance, using data from indices from: Bank of America Merrill
Lynch, Barclays, Fidelity Investments, Morningstar. Source:
Fidelity Investments (AART), as of 12/31/14.
Average Annual Return
-
A
SS
ET
ALL
OC
ATI
ON
Real Return: Managing Inflation Risk Still MattersInvestments
with hard-asset or income-adjusting characteristics have
historically offered inflation resistance, particularly when
investors needed it mostas inflation increased. Combining assets
into a diversified real-return composite has increased the
frequency of outpacing inflation as it rises, a difficult task for
cash in todays low-rate environment.
Frequency of Outperforming Inflation, 19982014
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CompositePortfolio
Commodities TIPS Leveraged Loans Real EstateStocks
Real EstateBonds
Cash
Outperformed during Rising Inflation Outperformed during Falling
Inflation
Overall Rate of Outperformance
77% 58% 79% 85% 72% 74% 44%
% of Periods Outperforming Inflation Rate
Past performance is no guarantee of future results.
Diversification does not ensure a profit or guarantee against loss.
It is not possible to invest directly in an index. Please see
appendix for important index information. Inflation rate:
year-over-year change in the consumer price index. Asset classes
represented by: Cash IA SBBI U.S. 30 Day Treasury Bill Index;
Commodities Bloomberg Commodity Index; Composite portfolio 30%
TIPS, 25% leveraged loans, 25% commodities, 10% real estate equity,
10% real estate income; Leveraged Loans S&P/LSTA Leveraged
Performing Loan Index; Real Estate Bonds BofA ML U.S. Corporate
Real Estate Index; Real Estate Stocks Dow Jones U.S. Select Real
Estate Securities Index; TIPS (Treasury Inflation Protected
Securities) Barclays U.S. TIPS Index. Source: Morningstar, Fidelity
Investments (AART), as of 11/30/14. 49
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A
SS
ET
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OC
ATI
ON
First Fed Rate Hike Typically Not a ShowstopperHistorically,
U.S. stocks have posted solid returns prior to and immediately
following the Feds first hike of a tightening cycle, with
double-digit average returns one year ahead of and one year after
the first rate increase. Bond performance has tended to slow prior
to and just after the first hike, though returns have generally
been solid two years later.
50
Equity Performance around Fed Tightening Cycles, 19502010
Fed: Federal Reserve. Past performance is no guarantee of future
results. Fidelity Investments proprietary analysis of historical
asset class total returns, using data from indices from: Barclays,
Fidelity Investments, Morningstar, Standard & Poors. Source:
Fidelity Investments (AART), as of 12/31/14.
-5% 5% 15% 25%
24 Months After
12 Months After
6 Months After
3 Months After
3 Months Prior
6 Months Prior
12 Months Prior
Average Return (%)
-5% 5% 15% 25%
24 Months After
12 Months After
6 Months After
3 Months After
3 Months Prior
6 Months Prior
12 Months Prior
Bond Performance around Fed Tightening Cycles, 19502010
Start of Fed Tightening Cycle
Average Return (%)
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A
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ET
ALL
OC
ATI
ON
Myopic Loss Aversion Prompts Risk-Averse BehaviorMyopic loss
aversion describes a common bias in which greater sensitivity to
losses than to gains is compounded by the frequent evaluation of
outcomes. Investors who review their portfolios more frequently
have tended to shift toward more conservative exposures, as
increased monitoring raises the likelihood of seeing (and reacting
to) a loss.
51
Impact of Feedback Frequency on Investment DecisionsMonthly
Yearly
Stocks70%
Bonds30%
In the study, subjects were assigned simulated conditions that
were similar to making portfolio decisions on a monthly or yearly
basis. Source: Thaler, R. H., A. Tversky, D. Kahneman, and A.
Schwartz. The Effect of Myopia and Loss Aversion on Risk Taking: An
Experimental Test. The Quarterly Journal of Economics 112.2 (1997),
used by permission of Oxford University Press, Fidelity Investments
(AART), as of 12/31/14.
Stocks41%
Bonds59%
-
A
SS
ET
ALL
OC
ATI
ON
Performance Rotations Underscore Need for DiversificationThe
performance of different assets has fluctuated widely from year to
year, and the magnitude of returns can vary significantly among
asset classes in any given yeareven among asset classes that are
moving in the same direction. A simple portfolio allocation with
60% in U.S. equities and 40% in U.S. bonds illustrates the
potential benefits of diversification.
Periodic Table of Returns
*2015 as of 3/31/15. Past performance is no guarantee of future
results. Diversification/asset allocation does not ensure a profit
or guarantee against loss. It is not possible to invest directly in
an index. All indices are unmanaged. Please see appendix for
important index information. Asset classes represented by:
Commodities Bloomberg Commodity Index; Emerging-Market MSCI
Emerging Markets Index; Foreign-Developed Country MSCI EAFE Index;
Growth Russell 3000 Growth Index; High Yield Bank of America
Merrill Lynch U.S. High Yield Index; Investment-Grade Barclays U.S.
Aggregate Bond Index; Large Cap S&P 500 Index; Real Estate FTSE
NAREIT Equity Index; Small Cap Russell 2000 Index; Value Russell
3000 Value Index. Source: Morningstar, Standard & Poors, Haver
Analytics, Fidelity Investments (AART), as of 3/31/15. 52
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* Legend
18% 75% 17% 38% 35% 35% 35% 66% 32% 14% 26% 56% 32% 35% 35% 40%
5% 79% 28% 8% 20% 39% 28% 5%Foreign-Developed
Country Stocks
17% 33% 8% 37% 23% 33% 29% 34% 26% 8% 10% 47% 26% 21% 33% 16%
-20% 58% 27% 8% 19% 34% 14% 4% Small Cap Stocks
15% 20% 3% 37% 23% 29% 21% 27% 12% 5% 4% 39% 21% 14% 27% 12%
-26% 37% 19% 4% 18% 33% 13% 4% Real Estate Stocks
15% 19% 2% 30% 22% 24% 20% 24% 8% 2% -2% 37% 18% 12% 22% 11%
-34% 32% 18% 4% 18% 32% 12% 4% Growth Stocks
11% 19% 1% 28% 22% 22% 14% 21% -1% -2% -6% 31% 17% 7% 18% 7%
-36% 28% 17% 2% 16% 23% 11% 3% High-Yield Bonds
8% 17% 0% 20% 16% 20% 9% 21% -3% -4% -9% 31% 11% 5% 16% 6% -36%
27% 16% 2% 16% 19% 6% 2%Emerging-Market
Stocks
8% 10% -1% 18% 15% 13% 3% 12% -5% -4% -15% 29% 11% 5% 12% 5%
-37% 26% 15% 0% 16% 7% 5% 2%Investment-Grade
Bonds
7% 10% -2% 15% 11% 10% -3% 7% -9% -12% -16% 28% 9% 5% 11% 2%
-38% 20% 15% -4% 15% 3% 3% 1%60% Large Cap40% IG Bonds
5% 10% -2% 15% 6% 2% -18% 3% -14% -20% -20% 24% 8% 4% 9% -1%
-38% 19% 12% -12% 11% -2% -2% 1% Large Cap Stocks
4% 4% -3% 12% 6% -3% -25% -1% -22% -20% -22% 19% 7% 3% 4% -2%
-43% 18% 8% -13% 4% -2% -4% -1% Value Stocks
-12% -1% -7% -5% 4% -12% -27% -5% -31% -21% -28% 4% 4% 2% 2%
-16% -53% 6% 7% -18% -1% -10% -17% -6% Commodities
-
Appendix: Important InformationViews expressed are as of the
date indicated, based on the information available at that time,
and may change based on market and other conditions. Unless
otherwise noted, the opinions provided are those of the authors and
not necessarily those of Fidelity Investments or its affiliates.
Fidelity does not assume any duty to update any of the
information.
Investment decisions should be based on an individuals own
goals, time horizon, and tolerance for risk.
These materials are provided for informational purposes only and
should not be used or construed as a recommendation of any
security, sector, or investment strategy.
Fidelity does not provide legal or tax advice and the
information provided herein is general in nature and should not be
considered legal or tax advice. Consult with an attorney or a tax
professional regarding your specific legal or tax situation.
Past performance and dividend rates are historical and do not
guarantee future results.
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against
loss.
All indices are unmanaged, and performance of the indices
includes reinvestment of dividends and interest income and, unless
otherwise noted, is not illustrative of any particular investment.
An investment cannot be made in any index.
Although bonds generally present less short-term risk and
volatility than stocks, bonds do contain interest rate risk (as
interest rates rise, bond prices usually fall, and vice versa) and
the risk of default, or the risk that an issuer will be unable to
make income or principal payments. Additionally, bonds and
short-term investments entail greater inflation riskor the risk
that the return of an investment will not keep up with increases in
the prices of goods and servicesthan stocks. Increases in real
interest rates can cause the price of inflation-protected debt
securities to decrease.
Stock markets, especially non-U.S. markets, are volatile and can
decline significantly in response to adverse issuer, political,
regulatory, market, or economic developments. Foreign securities
are subject to interest rate, currency exchange rate, economic, and
political risks, all of which are magnified in emerging
markets.
The securities of smaller, less well-known companies can be more
volatile than those of larger companies.
Growth stocks can perform differently from the market as a whole
and from other types of stocks, and can be more volatile than other
types of stocks. Value stocks can perform differently from other
types of stocks and can continue to be undervalued by the market
for long periods of time.
Lower-quality debt securities generally offer higher yields but
also involve greater risk of default or price changes due to
potential changes in the credit quality of the issuer. Any fixed
income security sold or redeemed prior to maturity may be subject
to loss.
Floating-rate loans generally are subject to restrictions on
resale, and sometimes trade infrequently in the secondary market;
as a result, they may be more difficult to value, buy, or sell. A
floating-rate loan may not be fully collateralized and therefore
may decline significantly in value.
The municipal market can be affected by adverse tax,
legislative, or political changes, and by the financial condition
of the issuers of municipal securities. Interest income generated
by municipal bonds is generally expected to be exempt from federal
income taxes and, if the bonds are held by an investor resident in
the state of issuance, from state and local income taxes. Such
interest income may be subject to federal and/or state alternative
minimum taxes. Investing in municipal bonds for the purpose of
generating tax-exempt income may not be appropriate for investors
in all tax brackets. Generally, tax-exempt municipal securities are
not appropriate holdings for tax-advantaged accounts such as IRAs
and 401(k)s.
The commodities industry can be significantly affected by
commodity prices, world events, import controls, worldwide
competition, government regulations, and economic conditions.
The gold industry can be significantly affected by international
monetary and political developments, such as currency devaluations
or revaluations, central bank movements, economic and social
conditions within a country, trade imbalances, or trade or currency
restrictions between countries.
Changes in real estate values or economic downturns can have a
significant negative effect on issuers in the real estate
industry.
Leverage can magnify the impact that adverse issuer, political,
regulatory, market, or economic developments have on a company. In
the event of bankruptcy, a companys creditors take precedence over
the companys stockholders.
Market Indices
BofA ML Corporate Real Estate Index, a subset of BofA ML U.S.
Corporate Index, is a market capitalization-weighted index of U.S.
dollar-denominated investment-grade corporate debt publicly issued
in the U.S. domestic market by real estate issuers. Qualifying
securities must have an investment-grade rating (based on an
average of Moodys, S&P, and Fitch). In addition, qualifying
securities must have at least one year remaining to final maturity,
a fixed coupon schedule, and a minimum amount outstanding of $250
million. BofA ML U.S. Real Estate Index is a subset of the BofA ML
Real Estate Corporate Index; qualifying securities must have an
investment grade rating and an investment grade-rated country of
risk. BofA ML U.S. High Yield Bond Index is a market
capitalization-weighted index of U.S. dollar denominated below
investment grade corporate debt publicly issued in the U.S.
domestic market.
53
-
Appendix: Important Information
54
Market Indices (continued)
Barclays U.S. 1-3 (1-5) Year Government Credit Index includes
all publicly issued U.S. government and corporate securities that
have a remaining maturity between one and three (five) years and
are rated investment grade. Barclays U.S. 1-5 Year Credit Index is
designed to cover publicly issued U.S. corporate and specified
non-U.S. debentures and secured notes with a maturity between one
and five years and meet the specified liquidity and quality
requirements; bonds must be SEC-registered to qualify. Barclays
U.S. 1-5 Year Municipal Index covers the one- to five-year
maturity, U.S. dollar-denominated, tax-exempt bond market with four
main sectors: state and local general obligation bonds, revenue
bonds, insured bonds, and pre-refunded bonds.
Barclays ABS Index is a market value-weighted index that covers
fixed-rate asset-backed securities with average lives greater than
or equal to one year and that are part of a public deal; the index
covers the following collateral types: credit cards, autos, home
equity loans, stranded-cost utility (rate-reduction bonds), and
manufactured housing. Barclays CMBS Index is designed to mirror
commercial mortgage-backed securities of investment-grade quality
(Baa3/BBB-/BBB- or above) using Moodys, S&P, and Fitch,
respectively, with maturities of at least one year. Barclays
Emerging Market Bond Index is an unmanaged index that tracks total
returns for external-currency-denominated debt instruments of the
emerging markets. Barclays Euro Aggregate Bond Index is a
broad-based flagshipbenchmark that measures the investment grade,
euro-denominated, fixedrate bond market, including treasuries,
government-related, corporate andsecuritized issues. Barclays Long
U.S. Government Credit Index includes all publicly issued U.S.
government and corporate securities that have a remaining maturity
of 10 or more years, are rated investment grade, and have $250
million or more of outstanding face value. Barclays Municipal Bond
Index is a market value-weighted index of investment-grade
municipal bonds with maturities of one year or more. Barclays U.S.
Agency Bond Index is a market value-weighted index of U.S. Agency
government and investment-grade corporate fixed-rate debt issues.
Barclays U.S. Aggregate Bond is a broad-based,
market-value-weighted benchmark that measures the performance of
the investment-grade, U.S. dollar-denominated, fixed-rate taxable
bond market. Barclays U.S. Corporate High Yield Bond Index is a
market value-weighted index that covers the universe of
dollar-denominated, fixed-rate, non-investment grade debt. Barclays
U.S. Credit Bond Index is a market value-weighted index of
investment-grade corporate fixed-rate debt issues with maturities
of one year or more. Barclays U.S. Government Index is a market
value-weighted index of U.S. Government fixed-rate debt issues with
maturities of one year or more. Barclays U.S. MBS Index is a market
value-weighted index of fixed-rate securities that represent
interests in pools of mortgage loans, including balloon mortgages,
with original terms of 15 and 30 years that are issued by the
Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan
Mortgage Corp. (FHLMC). Barclays U.S. Treasury Inflation-Protected
Securities (TIPS) Index (Series-L) is a market value-weighted index
that measures the performance of inflation-protected securities
issued by the U.S. Treasury. Barclays U.S. Treasury Bond Index is a
market value-weighted index of public obligations of the U.S.
Treasury with maturities of one year or more.
Bloomberg Commodity Index measures the performance of the
commodities market. It consists of exchange-traded futures
contracts on physical commodities that are weighted to account for
the economic significance and market liquidity of each
commodity.
The Citigroup Non-USD Group-of-seven (G7) Equal Weighted Index
is designed to measure the unhedged performance of the government
bond markets of Japan, Germany, France, Britain, Italy, and Canada.
The index is equal weighted by country. Issues included in the
index have fixed-rate coupons and maturities of one year or
more.
Dow Jones U.S. Select Real Estate Securities Index is a
float-adjusted, market capitalization-weighted index of publicly
traded real estate securities, such as real estate investment
trusts (REITs) and real estate operating companies (REOCs).
FTSE 100 Index is a market capitalization-weighted index of the
100 most highly capitalized blue chip companies listed on the
London Stock Exchange. FTSE National Association of Real Estate
Investment Trusts (NAREIT) All REITs Index is a market
capitalization-weighted index that is designed to measure the
performance of all tax-qualified REITs listed on the NYSE, the
American Stock Exchange, or the NASDAQ National Market List. FTSE
NAREIT Equity REIT Index is an unmanaged market value-weighted
index based on the last closing price of the month for
tax-qualified REITs listed on the New York Stock Exchange
(NYSE).
The Global Financial Data (GFD) World x/USA Return Index is a
multi-country composite index with constituents weighted by
relative GDP and stock market capitalizations; it is designed to
approximate continuous and comparable world ex-U.S. equity returns
from 1919 to 1969. GFD Emerging Markets Index is a composite of
various regional EM indices in use before 1987 using a
qualitatively selected weighting of constituent countries; it is
designed to approximate continuous and comparable EM equity returns
from 1920 to 1987.
The IA SBBI U.S. Small Cap Stock Index is a custom index
designed to measure the performance of small capitalization U.S.
stocks. IA SBBI U.S. Intermediate-Term Government Bond Index is an
unweighted index that measures the performance of five-year
maturity U.S. Treasury bonds. Each year, a one-bond portfolio
containing the shortest non-callable bond having a maturity of not
less than five years is constructed. IA SBBI U.S. Long-Term
Corporate Bond Index is a custom index designed to measure the
performance of long-term U.S. corporate bonds. IA SBBI U.S. 30-Day
Treasury Bill Index is an unweighted index that measures the
performance of 30-day maturity U.S. Treasury bills.
JPM EMBI Global Index, and its country sub-indices, total
returns for the U.S. dollar-denominated debt instruments issued by
Emerging Market sovereign and quasi-sovereign entities, such as
Brady bonds, loans, and Eurobonds. JPM EMBI Global Investment Grade
Index, and its country sub-indices, tracks total returns for traded
external debt instruments issued by emerging-market sovereign and
quasi-sovereign entities rated investment grade. JPM EMBI Global
Investment Grade Index, and its country sub-indices, tracks total
returns for traded external debt instruments issued by
emerging-market sovereign and quasi-sovereign entities rated
speculative grade.
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Market Indices (continued)
MSCI All Country (AC) Europe Index is a market
capitalization-weighted index that is designed to measure the
equity market performance of Europe; it consists of the following
developed and emerging-market country indices: Austria, Belgium,
Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary,
Ireland, Italy, Netherlands, Norway, Poland, Portugal, Russia,
Spain, Sweden, Switzerland, Turkey, and United Kingdom. MSCI All
Country World Index (ACWI) is a market capitalization-weighted
index that is designed to measure the investable equity market
performance for global investors of developed and emerging markets.
MSCI Europe Index is a market capitalization-weighted index that is
designed to measure the investable equity market performance for
global investors of the developed markets in Europe. MSCI North
America Index is a market capitalization-weighted index designed to
measure the performance of large and mid cap segments of the U.S.
and Canada markets. MSCI Pacific ex Japan Index is a market
capitalization-weighted index that is designed to measure the
equity market performance of four of the five developed market
countries in the Pacific region including Australia, Hong Kong, New
Zealand and Singapore. MSCI World Index is a market capitalization
weighte
