FidelityConnects: Global asset allocation perspectives: U.S. or global in the third quarter?

Join institutional portfolio manager Ilan Kolet as he shares the latest insights from Fidelity’s Global Asset Allocation team. In this webcast, Ilan discusses how the team is positioning portfolios for the second half of 2025, key macroeconomic themes shaping their outlook and how they’re navigating market dynamics across asset classes.

Transcript

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Hello, and welcome to Fidelity Connects.

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I'm Alex Gabrini. This week all eyes are on the Jackson Hole Symposium

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where investors are waiting for Fed Chair Jerome Powell's take on the direction

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of the economy. With interest rate decisions, employment trends and

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questions around US exceptionalism shaping today's market conditions

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how is Fidelity's Global Asset Allocation team positioning portfolios for the

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second half of 2025?

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Joining us today to share his insights is Fidelity institutional portfolio

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manager and member of the Global Asset Allocation team, Ilan Kolet.

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Good morning, Ilan, thanks for being here.

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Morning, Alex, great to see you.

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Let's start with the big one that everyone's watching, the Fed.

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In June you noted in your words that the Fed would likely love

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to be done yet Jerome Powell is now facing pressure from Washington to

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act. The U.S. Treasury Secretary has called for a half point cut

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at the next meeting and we've seen dissent within the Fed with two governors

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publicly advocating for a cut.

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On top of that last month's inflation report came in relatively tame

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yet sticky. My question is, how is the GAA team thinking about the

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path for interest rates now that inflation is moderating but yet not

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back to target?

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I think that's a great place for us to start.

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There's a lot for us unpack on this but let's first start with what

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is the Fed trying to achieve. The Fed is trying to achieve, as they've told us,

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they've been very explicit, they need inflation to moderate further.

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It's not, as you mentioned, back to where it should be.

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At the same time they're trying to balance that with the

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health of the labour market and just overall generally strong economic

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activity.

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What's priced in right now?

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Most investors are expecting in a month, at next month meeting,

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for the Fed to cut by 25 basis points and about 50 basis points,

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or two cuts, are priced in between now and the end of this year.

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The thing to remember is interest rates are higher in the U.S.

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than they are in Canada, which we can get into, but it wouldn't be

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surprising to me if the Fed did cut rates in

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September and then, perhaps, one more time between now and the end of this

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year.

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I think, in general, we overthink every little meeting and every little

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move and every little descent, which is natural,

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right? That's the industry we're in.

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The much more troubling issue, in my view, in our view,

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is the political side, Treasury

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officials commenting on the appropriate direction

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for monetary policy. The separation of monetary policy

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and the government is critical to the credibility of

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a central bank and to the functioning of

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a central bank.

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It's a cornerstone of central banking.

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It's problematic for us when we see

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political officials commenting on the path of

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interest rates or firing the head of the Fed.

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These are highly unproductive troubling signals, firing

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the head of the statistical agency, this is not the type of

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thing that we need to see to sort of calm concerns.

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But I would say again, rates right now in the U.S.

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are above neutral, I would say it somewhat above neutral, and

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for them to be reduced slightly to be brought more in

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line with neutral wouldn't be a surprise to me because, again,

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inflation moderates slowly, which is what we've seen, the labour market can

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change quite quickly and that's what they want to avoid.

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Chair Powell hasn't caved to the pressure yet, and perhaps he'll reiterate that

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independence, or the importance of that independence, at this week's symposium.

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Shifting gears a little bit because the Fed, as you mentioned, has a dual

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mandate which is stable prices but also maximum employment.

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I think you've noted that there are some red flags showing up on the labour

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side of the equation. Maybe walk us through what those red flags are and how

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that may alter the path.

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Economists love to look at inflation in the labour market.

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I remember when I was working as a research analyst down in

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Boston I had a dashboard for the U.S.

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job market that had 40 indicators on one page.

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We often like to summarize things with an unemployment rate or

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the number of jobs added each month, it's more complex than that.

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What I would say right now is the U.S.

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labour market, I would say broad brush remains healthy and stable.

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The unemployment rate was exceptionally low, probably too low, it's drifted

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higher which is very, very natural.

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But what is showing up now is there is a chunk of the labour market,

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probably about a third of the labour market, that is in

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pretty significant stress if you

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squint, if you look at it very, very closely.

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If Federal Reserve officials, if Chair Powell at the end of

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the Jackson Hole Symposium were to say that the U.S.

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labour market is generally healthy that wouldn't be incorrect.

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Again, we like to overthink certain numbers.

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What got a lot of attention?

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The labour report is released the first Friday of every month in the U.S.,

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as it has been forever.

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I've been following it for 25 years, that first Friday of every month.

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Last month we saw historical revisions.

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Now, what are historical rev visions?

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Every single month that number of jobs added is an estimate.

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That's what it is. When they receive more input and more input

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data they revise that estimate, similar to almost how you revise earnings.

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There were some downward revisions which got a lot of attention because they're

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now politicized. I never thought statistical revisions would be politicized

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but they are now.

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The revisions were negative. Again, we shouldn't expect the U.S.

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job market to be adding a quarter million jobs every single month

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forever. There's a natural slowing that should occur as you reach the

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capacity of what that labour market can maintain.

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We're sort of there which is another reason why you might think, well,

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now is the time to perhaps normalize rates even further.

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What data is going to come out between now and the Fed's next

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meeting and what are they looking for, what signs are they're looking for?

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There's a heap of data that will come out, really, every single month every

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day. Some of it's more important than other data points.

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I would say the first Friday of September we will receive

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the jobs report for August.

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That's going to be a critical piece of data,

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a critical input for the Fed meeting, but so

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too will business sentiment and inflation reports.

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Again, it's not just the CPI, it's CPI, PCE, PPI,

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there are surveys on prices. For every one piece

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of data that we talk about here or on stage or

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with clients there's really a dozen behind it that are either feeding that

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piece of the data or are sort of complementary.

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For us, again, the way that we work with our researchers on the

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Asset Allocation research team is we have proprietary models that take into

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account a lot of this data.

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We never just look at one data point, there's a whole host

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of indicators that we're looking at to sort of read the

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tea leaves in terms of the strength or direction of an economy.

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Let's get into the conversation on the U.S.

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a little bit deeper here.

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For a long time the U.S. has been the safe haven choice for investors.

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I know last year you were talking a lot about a productivity

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boom that was supporting U.S.

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exceptionalism and you had an overweight to the U.S.

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for some time.

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It sounds like your view on this has evolved, maybe talk us through that

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evolution and what's changed.

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Absolutely. I would say this is the biggest change.

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If we were talking 12 months ago, I'm sure we were,

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there's been a really material change in my conversations

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coast to coast with advisors and institutions

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and on the stage about how we're talking about the U.S.

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today versus a year ago. A year ago sitting here I was talking about

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U.S. exceptionalism. I was talking about sort of

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blowing up the standard 09:00 to 5:00 workweek, a productivity boom

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that was being witnessed in the U.S.,

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huge increases in labour force participation from female

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labour force participation or disabled labour force participation, really

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structural changes that were happening in the U.S.

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economy that we just have never seen, I've never seen in my time as an

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economist, and really

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huge investments in CapEx, perhaps

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AI as well, but really something was in the soup that was pushing growth

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higher.

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The reason that's important is growth was running higher than where it could be

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with slowing inflation and with a healthy labour market.

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Normally, when growth is running hotter than where

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we think it can be that results in inflation.

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Excess growth normally results in higher inflation because the labour market

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gets too tight, you have to pay people more, that wage growth turns into

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inflation. But we weren't seeing that.

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The only way to square that is that the stall speed of the U.S.

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economy had risen. I mean, it's remarkable.

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It's a great checklist because you get stronger growth with slowing inflation,

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healthy labour market, earnings revising higher, equities doing well, who

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doesn't want that? It's very different story today.

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We wrote a paper in, well, Q2 and Q3 we write a quarterly thought

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leadership paper. In those papers we put forth our latest thoughts

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in a jargon-free way.

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They're investor-friendly, they're advisor-friendly — I mean, they better be or

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tell us.

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We've talked about the underpinnings of U.S.

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exceptionalism have come under attack.

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What is that? Strong, stable and predictable policymaking,

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that general sort of the U.S. playing the role of the referee in terms

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of global business, that has come under pressure.

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We saw what that resulted in in the early part of this year with

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U.S.

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markets falling precipitously.

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There's been some buyback there but we're still fundamentally

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concerned about the U.S.

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because, again, there are just too many things lining

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up that really question the underpinnings of exceptionalism.

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Firing the head of a statistical agency is seriously problematic.

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It happened in Argentina, go look that up and see what

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happened there. It's problematic, and I don't

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think I'm exaggerating when I say that, it's seriously problematic.

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There's been a few of those signals.

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You've reduced your exposure to the U.S., as I've noticed in your portfolios

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over the last six months or more, but the U.S.

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is actually showing remarkable signs of strength right now in the market.

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Do you view that as a head fake or is that something that could be construed

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as kind of a reversal?

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It's interesting.

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As you mentioned, we are underweight U.S.

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equities right now in our portfolio. If I think of the Global Balanced 60/40

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portfolio it's about a 4%, 4.5% underweight to U.S.

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equities, whereas we were overweight U.S.

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equities from August of 2023 until, really, the start of this

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year. That was incredibly helpful in a year like last year to

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be leaning into the U.S.

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We're leaning away, and we have been leaning away this year, but there's a

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couple of things to note. First, we don't put

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a lot of stock into the most recent U.S.

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performance. We don't think the underlying structural issues in

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the U.S. that existed five months ago, six months ago, have

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gone away. In fact, you could argue that they've probably gotten worse.

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I think it's interesting that tariffs which probably

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caused, or were the trigger for the pullback earlier this year.

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Effective tariffs are now sort of being viewed as probably not that damaging.

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I think it might be a little bit too early to call, to sort of

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sign that one off but so far it seems that

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effective tariffs, in the case of Canada the stuff sort of covered by the USMCA

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blanket, is not as bad as we would have expected.

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The thing to keep in mind here is, and I know a lot of people will know this,

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you know this, an underweight to U.S. equities doesn't mean we don't own any

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U.S. equities. It means, I don't know, the 30% of U.S.

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equities that is in the Global Balanced Fund we trim by 4%.

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There's still plenty of U.S. Equities in these funds, core building block

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managers. We can still win in that space,

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we just think there might be other parts of

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the globe that will, perhaps, win the race this

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year against the U.S.

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I'd love to explore those other areas that you've pivoted that overweight

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into. I wanted to ask you, Mark

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Schmehl, portfolio manager for Fidelity Global Innovators Class, mentioned

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pivoting back into AI back in April

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as usage began proving, in his words, useful not

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just cool, I wanted ask if GAA is adjusting its assumptions around

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productivity growth, or earnings for that matter, corporate earnings, in light

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of accelerating U.S. adoption in the U.S.

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Another really good question and, actually, follows on beautifully from the

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previous one. It's only a matter of time before instead of us sitting here it's

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digital avatars talking to advisors.

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Even though we are underweight U.S.

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equities we can still win.

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Mark points out a really good point.

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Mark is a core building block manager in many of our strategies.

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If Mark wins against his benchmark and we own him

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we win as well. There's really two ways for us to win in these funds.

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The first is we overweight Europe instead

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of the U.S. and Europe does better than the U.S., we win that way.

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That's the asset allocation. The second one is the security selectors.

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Again, it's an important clarification point that you brought up, Alex, that

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we're not forgoing the AI adoption

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story at all. We're still participating, absolutely.

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You've shifted a little bit of that overweight elsewhere.

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I noticed that your most recent white paper is titled,

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On Our Way Home, and I can only assume that means that you've

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aggressively repositioned assets towards Canada.

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Is that true?

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Well, yeah.

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On Our Way Home, I encourage everyone to read it. It's a pretty significant

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change. I joined the team in the start of '21

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but even predating me on the team we

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have been underweight Canadian assets, meaning we've been underweight Canadian

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equities and meaningfully underweight the Canadian dollar.

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There's a significant shift

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that has occurred. We've been buying back Canadian equities.

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We're roughly neutral Canadian equites now, call it, in the Global Balanced

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portfolio. That's meaningful, 21% of the

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equity sleeve of that portfolio is now Canadian equities whereas in the past

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that underweight, as you know, has been

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-4, -6, -8 and we've been leaning away from Canadian equities.

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We've neutralized, and that's a meaningful change because

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Canada's galvanized, Canada has galvanized.

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Some of that is the effect of tariffs, and some of

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it has yet to show up, if we're being quite honest. Removal of inter-provincial

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trade barriers, pushing productivity higher, which hasn't pushed higher in

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decades, we are cautiously optimistic

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that we're starting to see some policies that will kickstart

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that productivity growth.

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That's very, very positive.

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The other side of it is the Canadian dollar, which I know we're going to get to

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as well, but the composition of the Canadian dollar position has

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changed as has the size of it as well.

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00:16:42,067 --> 00:16:45,270

Hello, investors. We'll be back to the show in just a moment.

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00:16:45,270 --> 00:16:48,607

I wanted to share that here at Fidelity, we value your opinion.

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00:16:48,607 --> 00:16:51,643

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00:16:51,643 --> 00:16:56,115

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And don't forget to listen to Fidelity Connects, the Upside, and French

280

00:17:05,391 --> 00:17:09,428

DialoguesFidelity podcasts available on Apple, Spotify, YouTube, or wherever

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00:17:09,428 --> 00:17:12,631

else you get your podcasts. Now back to today's show.

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It looks like you've also increased your exposure to international equities a

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little bit as well, Europe, emerging markets, why have you

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sort of diversified more internationally?

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As asset allocators you can't be defensive everywhere.

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If you're defensive and you're leaning away from

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the U.S. there's also areas where we can find opportunity.

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This was really fantastic input

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from our research team, the team I used to sit on.

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They were quite early to the thesis that we really should be leaning

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into Europe.

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If I go back to our process, we have a four pillar investment process that's

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macro, bottom-up, sentiment, and valuation, valuations

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are not a good timing tool. Forever I was talking about attractive valuations

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in Europe and attractive valuations in emerging markets.

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I feel I've been talking about that for years.

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Valuations, the way that we kind of think about valuations is

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valuations need a catalyst in order

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for them to really sort

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of become investible.

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00:18:22,134 --> 00:18:26,538

In the case of U.S., excessive valuations,

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or frothy valuations, the way that we justified that last year was,

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well, exceptional valuations are being justified by U.S.

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exceptionalism. Now that's come under attack.

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00:18:37,349 --> 00:18:41,520

In the cases of Europe, again, very attractive valuations and we believe

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that earlier this year we saw that catalyst.

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I think in our Q2 paper we have a chart, which I never thought would show up in

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00:18:48,160 --> 00:18:51,930

a paper, on German defence spending as a share of GDP.

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Not a chart that you'd normally see in one of our papers.

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It's 1% for 20 years and it hooks straight up

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because something happened in Europe where they realized, look, the U.S.

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is no longer the referee that we thought it was and

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00:19:07,479 --> 00:19:09,948

it's galvanized Europe.

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As you correctly pointed out we have a meaningful overweight to European

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00:19:14,119 --> 00:19:17,456

equities and, as well, an overweight to emerging markets.

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00:19:17,456 --> 00:19:21,727

It's slightly smaller but again, emerging markets is another place where we've

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talked about attractive valuations forever.

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I joke, we've been waiting a long time for emerging markets to emerge.

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Maybe now is the time.

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00:19:30,369 --> 00:19:34,473

As asset allocators we want to lean away from things that we think are going to

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00:19:34,473 --> 00:19:37,276

underperform and lean into things that we think will outperform.

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00:19:37,276 --> 00:19:42,214

You're not in the business of predicting these valuation catalysts and

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your repositioning of assets internationally is not so much a

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case of the best house in the bad neighbourhood.

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There are actually constructive elements supporting that position.

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00:19:51,523 --> 00:19:56,094

Absolutely. If you listen to

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Connects with Ramona or you look at her performance, this is a great example of

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leaning into some of these European defence names.

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00:20:02,568 --> 00:20:06,605

Really, it's showing up on the security selection side and helping

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to boost our performance.

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00:20:07,839 --> 00:20:12,578

In relation to currencies, I think at the beginning of the year you had a 20%

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overweight to the U.S. dollar.

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00:20:14,580 --> 00:20:19,151

Where does that stand today and which currencies have you added exposure to?

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00:20:19,151 --> 00:20:22,888

This is another really important point for us to talk about.

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This is something we're going to spend a lot of time talking about for the

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00:20:26,291 --> 00:20:30,596

remainder of this year in some of our events, is

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not only how we use the currency, so let me start with that, if that's okay,

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I'll sneak in a question you didn't ask, and then how it's evolved.

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Historically, we have used our currency, being underweight

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the Canadian dollar or being overweight the U.S.

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00:20:44,810 --> 00:20:49,014

dollar, as an additional layer of diversification and

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a way to smooth out returns. We know the Canadian

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dollar is a very cyclical currency so if we could be underweight the Canadian

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00:20:56,288 --> 00:21:00,392

dollar at times it helps to smooth out the return for the end investor.

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We've written a lot on that.

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The composition of that underweight, and I'm going to get a little nerdy here,

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00:21:07,432 --> 00:21:11,169

unsurprisingly, has changed pretty meaningfully.

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As you pointed out, in the past when we've had a large underweight or an

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00:21:15,140 --> 00:21:18,310

underweight to the Canadian dollar that's really been an overweight to the U.S.

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dollar, basically.

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00:21:20,612 --> 00:21:24,783

But given what we've observed year-to-date, this underpinnings of

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exceptionalism coming under pressure, the U.S.

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dollar depreciating, that we viewed as a real structural

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change and we wanted to reduce our exposure

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to any further U.S. dollar depreciation.

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What did we do? We did two things.

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First thing we did is we pulled in our Canadian dollar underweight,

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meaning we're less underweight the Canadian dollar today than we

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were at the end of last year. As you rightly pointed out it was a -18, -20%,

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today it's a -3, -4 %.

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That's the first point, so much smaller underweight to the Canadian dollars

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but perhaps even more importantly, that underweight, that

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00:22:03,922 --> 00:22:07,559

-3 or -4% to the Canadian dollar, in the past it would have been a 3 or a 4 %

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00:22:07,559 --> 00:22:11,730

overweight to the U.S. dollar, now it is a 3 or 4% overweight to everything

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00:22:11,730 --> 00:22:14,433

but the U.S. dollar.

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00:22:14,433 --> 00:22:17,803

The yen, the pound, the euro, not the U.S.

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dollar. Again, it's sometimes tricky to talk about

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these in webcasts like this or on stage because

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it is a nerdy kind of concept.

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The way I would characterize it is it's another additional

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tool that we have to smooth out volatility and

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enhance return for end investors.

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00:22:40,125 --> 00:22:44,162

Fair enough. You're using these as tools for

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diversification.

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Exactly.

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Does it also mean that you're anticipating further depreciation of the

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00:22:49,735 --> 00:22:51,636

U.S. dollar in that case?

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Given what we've observed so far, I mean,

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00:22:56,174 --> 00:22:59,544

it wouldn't be impossible to see further depreciation of the U.S.

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00:22:59,544 --> 00:23:03,682

dollar. I'm very reticent to forecast exchange

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00:23:03,682 --> 00:23:05,650

rates or oil prices.

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00:23:05,650 --> 00:23:10,222

Somehow every job I've had I've been tasked with doing both of those things.

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00:23:10,222 --> 00:23:14,259

What we want to really do is just kind of insulate the funds from further

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00:23:14,259 --> 00:23:18,497

U.S. dollar depreciation. The

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00:23:18,497 --> 00:23:20,766

U.S. dollar was at an extreme level last year.

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00:23:20,766 --> 00:23:25,103

It has depreciated and sort of stabilized a little bit but for us,

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00:23:25,103 --> 00:23:29,207

again, when I started on the team in '21, Geoff Stein, our now retired CIO,

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00:23:29,207 --> 00:23:33,111

said the way that we add value in these funds is we add one basis point to the

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00:23:33,111 --> 00:23:37,115

mountain one basis point at a time, and so we're always thinking about these

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00:23:37,115 --> 00:23:41,153

various levers that we can pull to enhance

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00:23:41,153 --> 00:23:41,386

returns.

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00:23:41,386 --> 00:23:46,124

Sounds like you would fit in nicely at Jackson Hole this week.

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00:23:46,124 --> 00:23:50,162

I'm always curious about the process, would you mind maybe giving us

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00:23:50,162 --> 00:23:54,499

a window into the GAA team's process for scenario

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00:23:54,499 --> 00:23:58,437

analysis? What types of

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00:23:58,437 --> 00:24:02,007

stress tests are you running today and what might cause you to pivot from your

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00:24:02,007 --> 00:24:03,108

base case?

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00:24:03,108 --> 00:24:06,812

There's a lot that we can unpack there.

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00:24:06,812 --> 00:24:09,781

For advisors who are watching right now, or listening, they know myself, they

400

00:24:09,781 --> 00:24:13,385

know David Wolf, they know David Tulk, and they know they're a great Fidelity

401

00:24:13,385 --> 00:24:15,454

wholesaler that they work with.

402

00:24:15,454 --> 00:24:19,391

Behind our team are a host of people that we work with and

403

00:24:19,391 --> 00:24:23,395

meet with regularly that really contribute to the success and

404

00:24:23,395 --> 00:24:26,865

the management of these funds. Portfolio analysts sitting in Boston, a

405

00:24:26,865 --> 00:24:31,870

quantitative team also sitting in Boston as well.

406

00:24:31,870 --> 00:24:33,905

We meet with them every single month.

407

00:24:33,905 --> 00:24:37,409

Actually, this is a meeting that I run that we had last week.

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00:24:37,409 --> 00:24:41,580

In this meeting we bring together anyone who contributes

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00:24:41,580 --> 00:24:45,550

to the analysis or the management of

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00:24:45,550 --> 00:24:49,955

our funds. That includes myself and the two Davids, our president is invited,

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00:24:49,955 --> 00:24:53,792

the CIO, any quantitative analysts that contribute to our funds and the

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00:24:53,792 --> 00:24:57,929

portfolio analysts. We review every single fund and

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00:24:57,929 --> 00:25:02,567

every single number every month.

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00:25:02,567 --> 00:25:06,171

Imagine going in for a medical with your doctor and checking every vita but

415

00:25:06,171 --> 00:25:09,474

instead of just you it's everyone in your neighbourhood and you're doing it

416

00:25:09,474 --> 00:25:14,679

once a month. It's a very, very detailed analysis.

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00:25:14,679 --> 00:25:18,783

Part of that is, again, our process is based on macro,

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00:25:18,817 --> 00:25:23,221

bottom-up, sentiment and valuation and we're looking at signals that

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00:25:23,221 --> 00:25:27,025

feed into those. As you rightly pointed out, Alex, we're also doing scenario

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00:25:27,025 --> 00:25:31,096

analysis. We talked about this a little bit last week where

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00:25:31,096 --> 00:25:34,633

we have a quantitative team, a fantastic team of quantitative analysts, that

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00:25:34,633 --> 00:25:37,435

help us answer the following questions.

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00:25:37,435 --> 00:25:41,473

If we were to see a

424

00:25:41,473 --> 00:25:44,976

2001 type of pullback what would it mean for our funds?

425

00:25:44,976 --> 00:25:48,613

If we were to see a COVID type of shock what would that mean for our funds?

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00:25:48,613 --> 00:25:53,051

What that quantitative analyst is doing is taking a bunch of

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00:25:53,051 --> 00:25:57,188

really important historical events, two standard deviation

428

00:25:57,188 --> 00:26:01,526

move in oil prices or in the dollar

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00:26:01,526 --> 00:26:05,664

and layering that type of shock into our funds based on what

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00:26:05,697 --> 00:26:09,868

we own in terms of the building blocks, in terms of what we own today.

431

00:26:09,868 --> 00:26:12,437

I'm a huge fan of counterfactuals.

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00:26:12,437 --> 00:26:15,407

I always say, had it not been for beer I would have been an Olympic athlete.

433

00:26:15,407 --> 00:26:19,344

I'm always a fan of these counterfactuals and

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00:26:19,344 --> 00:26:23,448

this is a really powerful counterfactual that we do and we update and

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00:26:23,448 --> 00:26:27,652

examine every single month just to take another

436

00:26:27,652 --> 00:26:31,690

view as to how we're examining some of the positions and

437

00:26:31,690 --> 00:26:33,091

risks in the funds that we manage.

438

00:26:33,091 --> 00:26:36,928

I'm always curious, how do new building blocks make their way into the

439

00:26:36,928 --> 00:26:39,731

portfolios? Over time you've added more and more tools.

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00:26:39,731 --> 00:26:43,902

Gold, for instance,

441

00:26:43,902 --> 00:26:47,639

is a position I believe you have an out of benchmark weighting in right now.

442

00:26:47,639 --> 00:26:51,476

How does that decision get made?

443

00:26:51,476 --> 00:26:55,547

Every answer to every question can come back to research.

444

00:26:55,547 --> 00:26:59,884

In fact, I did some of the research on the efficacy of gold and commodities

445

00:26:59,884 --> 00:27:03,188

when I was in my previous seat as a researcher

446

00:27:03,188 --> 00:27:07,959

Speaking more broadly on new building blocks or

447

00:27:07,959 --> 00:27:12,063

new managers, the way I would characterize that is there's a lot of

448

00:27:12,063 --> 00:27:15,900

research that's going on that people don't see, that we don't get to talk about

449

00:27:15,900 --> 00:27:18,536

here until it's baked into the funds.

450

00:27:18,536 --> 00:27:22,440

Great example of that is last May we added three Fidelity Canada liquid

451

00:27:22,440 --> 00:27:26,478

alternative positions into the managed portfolios and a dedicated

452

00:27:26,478 --> 00:27:28,813

sleeve of private real estate in the private investment pools.

453

00:27:28,813 --> 00:27:32,751

There were months and months of research that

454

00:27:32,751 --> 00:27:36,888

went into examining counterfactuals, what would the return have been

455

00:27:36,888 --> 00:27:40,025

had we had this? What will it do to risk metrics?

456

00:27:40,025 --> 00:27:43,995

There's this ongoing agenda of research

457

00:27:43,995 --> 00:27:48,166

that underpins our funds, and sometimes it results in

458

00:27:48,166 --> 00:27:52,470

yes, these are asset classes or new managers that we should add,

459

00:27:52,470 --> 00:27:57,709

and sometimes it's no, we're not going to add this because of drawdown risk.

460

00:27:57,709 --> 00:28:01,680

You view gold as an example as a position that you're likely going to

461

00:28:01,680 --> 00:28:03,882

continue to own as an out of benchmark play.

462

00:28:03,915 --> 00:28:05,583

Yes, I would say so.

463

00:28:05,583 --> 00:28:07,686

The gold position has been there for some time.

464

00:28:07,686 --> 00:28:09,754

It's wiggled around a little bit in terms of size.

465

00:28:09,754 --> 00:28:14,292

I assume your team has done the same research on Bitcoin, for example.

466

00:28:14,292 --> 00:28:18,263

Small positions of Bitcoin have shown up in our All-in-One ETFs but

467

00:28:18,263 --> 00:28:22,400

I have not yet seen them in your line-up, managed portfolios.

468

00:28:22,400 --> 00:28:26,337

Right. Sometimes when the Bitcoin question comes up I say, oh, I think

469

00:28:26,337 --> 00:28:28,173

we're out of time.

470

00:28:28,173 --> 00:28:30,709

We almost are.

471

00:28:30,709 --> 00:28:34,679

To be quite frank, Bitcoin and crypto, we did the same sort of

472

00:28:34,679 --> 00:28:38,750

research. That research that went into the alts and the private real

473

00:28:38,750 --> 00:28:41,419

estate, we did that same sort of research.

474

00:28:41,419 --> 00:28:45,657

Given the volatility of that asset class we decided not to add it to the

475

00:28:45,657 --> 00:28:48,827

managed portfolios but nothing is preordained.

476

00:28:48,827 --> 00:28:54,232

That research will be ongoing but

477

00:28:54,232 --> 00:28:58,303

at the current time we arrived at the decision really not to add it while it

478

00:28:58,303 --> 00:28:59,871

is in the All-in-Ones.

479

00:28:59,871 --> 00:29:01,606

Fair enough. We've got about a minute left here, Ilan.

480

00:29:01,606 --> 00:29:05,643

I'd love to hear maybe what your takeaway is on what the biggest market

481

00:29:05,643 --> 00:29:10,014

risk is that we're facing today that may be overlooked by

482

00:29:10,014 --> 00:29:13,218

the market. Is it valuations, is it stagflation or is it something else

483

00:29:13,218 --> 00:29:16,121

entirely?

484

00:29:16,121 --> 00:29:19,791

This question has come through from a lot of wholesaling teams, with the recent

485

00:29:19,791 --> 00:29:23,728

move in the U.S., that really strong performance, I

486

00:29:23,728 --> 00:29:27,198

think it's very easy to look at that strong performance and say, you know what,

487

00:29:27,198 --> 00:29:29,934

all of those things undermining credibility and U.S.

488

00:29:29,934 --> 00:29:33,705

exceptionalism are probably fine because we're seeing really strong market

489

00:29:33,705 --> 00:29:37,709

performance. I think sometimes we tell ourselves narratives that make us feel

490

00:29:37,709 --> 00:29:39,644

good when the line is going up.

491

00:29:39,644 --> 00:29:44,516

We are still concerned about that undermining of exceptionalism.

492

00:29:44,516 --> 00:29:48,853

It doesn't mean we don't own any U.S., it means we're leaning away slightly in

493

00:29:48,853 --> 00:29:49,788

favour of other areas.

494

00:29:49,788 --> 00:29:54,025

What would your key takeaway then be to advisors?

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00:29:54,025 --> 00:29:58,062

The thing with the portfolios that we manage, the managed solutions or

496

00:29:58,062 --> 00:30:01,933

the private investment pools, they are elegant solutions to complex problems.

497

00:30:01,933 --> 00:30:06,171

Think of the breadth of the conversation we had today and where we went.

498

00:30:06,171 --> 00:30:09,574

These are things that we're thinking about every single day and working with

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00:30:09,574 --> 00:30:14,312

fantastic researchers and underlying managers.

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00:30:14,312 --> 00:30:17,649

It is the key ingredient to their success.

501

00:30:17,649 --> 00:30:20,084

I think that's the perfect place to end off. Thank you very much, Ilan, for

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00:30:20,084 --> 00:30:20,485

joining us.

503

00:30:20,485 --> 00:30:20,852

Thanks, Alex.

504

00:30:20,852 --> 00:30:21,953

We appreciate it.

505

00:30:21,953 --> 00:30:25,890

Thanks for watching or listening to the Fidelity Connects

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00:30:25,890 --> 00:30:30,028

podcast. Now if you haven't done so already, please subscribe to Fidelity

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Connects on your podcast platform of choice.

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And if you like what you're hearing, please leave a review or a five-star

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rating. Fidelity Mutual Funds and ETFs are available by working with

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a financial advisor or through an online brokerage account.

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Visit fidelity.ca/howtobuy for more information.

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While on Fidelity.ca, you can also find more information on future live

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and Instagram.

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We'll end today's show with a short disclaimer.

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00:30:58,857 --> 00:31:02,694

The views and opinions expressed on this podcast are those of the participants,

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and do not necessarily reflect those of Fidelity Investments Canada ULC or

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its affiliates. This podcast is for informational purposes only, and should not

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be construed as investment, tax, or legal advice.

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00:31:13,171 --> 00:31:15,473

It is not an offer to sell or buy.

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Or an endorsement, recommendation, or sponsorship of any entity or securities

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cited. Read a fund's prospectus before investing, funds are not guaranteed.

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00:31:24,616 --> 00:31:28,186

Their values change frequently, and past performance may not be repeated.

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Fees, expenses, and commissions are all associated

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with fund investments.

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Thanks again. We'll see you next time.

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FidelityConnects: Global asset allocation perspectives: U.S. or global in the third quarter?

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