FidelityConnects: Helping clients stay on track for retirement with ClearPath

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Hello, and welcome to Fidelity Connects. I'm Pamela Ritchie. We're in the early

 

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innings of the tariff impact really unfolding.

 

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As markets continue to shift investors are re-evaluating their exposure across

 

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geographies, sectors, asset classes.

 

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Today we explore how investors are navigating volatility and how

 

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a life cycle strategy can help clients be on track towards

 

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their retirement goals.

 

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We'll also unpack inflation, tariffs, currency positioning, and what they

 

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might mean for retirement-focused portfolios like the Fidelity ClearPath

 

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target date funds.

 

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Joining us here today to share those insights is Jon Knowles.

 

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He's institutional portfolio manager of Fidelity's Global Asset Allocation

 

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Team. In today's webcast, once we introduce Jon, just one second here,

 

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will be presented in English with live French interpretations so do join us

 

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in either official language. Always send your questions in, you can use the Q&A

 

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function there. Okay, welcome Jon. Great to have you here with us.

 

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Welcome to Fidelity Connects.

 

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Thank you very much. Happy to be here.

 

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We're delighted to have you here, and we'll make sure questions come in and so

 

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on. Let's begin with what ClearPath is.

 

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Ultimately, you'll take us around the world and how you invest that.

 

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This is 80%, roughly, a fixed income portfolio

 

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and you have the ability to

 

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be active on the other 20% or so.

 

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There's a lot to unpack in terms of what target date funds really are.

 

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The simplest way to think about a target date fund is that it's an investment

 

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solution that's really meant to take somebody from their early days of saving

 

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for retirement or a long term investment goal and really

 

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meant take them all the way towards that time, that target date, as the

 

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name suggests, and then continue to de-risk beyond that.

 

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When we think about kind of the foundational underpinnings of a target date

 

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strategy we like to talk about the strategic asset allocation or the glide

 

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path. As you mentioned, the strategic allocation is really what's going to

 

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drive about 80% to 90% of the investment risk and return.

 

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Bonds but also equities in varying form as well.

 

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Build up a little bit of that nest egg.

 

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As time passes we recognize that the needs and sensitivities of individuals

 

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also adjust too so we want to begin to de-risk the portfolio.

 

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That's why it's called the glide path because you glide down it over time.

 

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That means that we're selling a little bit of equities and buying fixed income

 

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on an ongoing basis, diversifying within equities in fixed income as

 

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well, but then we get towards the target date.

 

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If we're thinking about retirement that could be sometime well into the future,

 

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somebody's around age 65, and at that time we'd have a mix of about 50%

 

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equities and fixed income but then we would continue to de-risk, again,

 

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recognizing that somebody who's well into their retirement has a lot of

 

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different needs. They generally want capital preservation and maybe some

 

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inflation resiliency in their portfolio relative to somebody who is just

 

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retired and still has a longer planning horizon.

 

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At our most conservative point, that's where we have the 80% fixed income and

 

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the remainder would be equities, which really allows us to build this good

 

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foundation for our portfolio.

 

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As we think about target date funds, we have a very interesting job of

 

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creating our benchmark on an ongoing basis.

 

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It's continuing to evolve. We say that the glide path lives and breathes

 

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because we make changes to it based off of what we see in capital markets but

 

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then also what we in the Canadian investor themselves.

 

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The Canadian investor, this is an institutional way of approaching things,

 

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there's quite a lot of money in North America

 

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put into this particular strategy because you're working with the U.S.

 

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as well. How big is it?

 

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I think it's sort of a lesser known fact in the Canadian marketplace

 

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but Fidelity is one of the largest target date providers in the world and we

 

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manage about a trillion dollars in target date assets.

 

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It makes us one of the largest Canadian financial institutions, certainly, if

 

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we were just looking at target date assets, but really what comes with that is

 

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a whole host of resources behind the scenes and that ensures that we can

 

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offer a very simple investment solution.

 

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We call it a one-stop shop, takes you from early days of investing to your late

 

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stages of life and that ensures that we have good operational support,

 

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lots of research, traders, portfolio managers, people that are just day-to-day

 

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dedicated towards target date investing.

 

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We'll talk about the active side and the portfolio side, the equity side

 

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and we'll get into that in a second, but what do you do with things like

 

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inflation over the course of someone's life of, say, age 25, as you said,

 

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I think up to 85? I mean, it is vastly different, obviously, the story today

 

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than it was way back then when you probably started offering them.

 

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What do you do with the resources that you have to tackle that?

 

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Inflation is perhaps one of the most interesting things when we think about

 

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multi-asset investment portfolios.

 

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One of frameworks that we use to think about diversification, and this kind of

 

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goes across some of the other strategies in our Global Asset Allocation group,

 

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we've studied history, we go back over 100 years and

 

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we look at kind of what has transpired from an economic sensitivity

 

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perspective. What we find is that there's generally four market environments

 

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that have occurred through history, rising rate environments, falling rate

 

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environments, deflationary stress, and inflationary stress environments.

 

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Depending on which of those four environments we find ourselves in the types

 

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of investments that we could own, whether it's equities, regional equities,

 

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fixed income, regional fixed income, cash, commodities, alternatives,

 

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whatever it may be, they have different sensitivities in those specific market

 

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environments. What we've seen more recently as inflation has come back

 

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into the equation is that equities and fixed income are particularly challenged

 

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in periods of inflationary stress.

 

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As I kind of alluded to at the beginning, a lot of our portfolios are equities

 

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and fixed income. We want to think very deeply about who is

 

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most sensitive to inflationary stresses.

 

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Again, it's a life cycle investment solution and generally what we think is

 

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that younger individuals, if we think about the total picture of financial

 

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wealth that somebody has it's financial assets and your human capital, your

 

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earnings potential. Younger individuals have a lot of earnings potential and

 

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not many financial assets.

 

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That human capital is generally somewhat inflation resilient or has sensitivity

 

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to inflation over time, your earnings kind of go up with inflation to a certain

 

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extent.

 

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From a financial investment portfolio perspective we maybe don't have to do

 

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quite as much because you've already got really good diversification.

 

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As you get a lot older and you're in retirement and you are drawing on this

 

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pocket of money that you have to actually fund liabilities that are going up

 

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with inflation we definitely think that you need more inflation resiliency in

 

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that point in time for those individuals, things like global inflation-linked

 

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bonds that maybe have a shorter duration profile associated with them,

 

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equities, Canadian equities, specifically, are a very good sort of inflation

 

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resiliency investment solution that we can invest in.

 

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Also Canadian real return bonds would be another example of something that's a

 

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little bit more close to home that has that inflation sensitivity associated

 

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with it.

 

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Jackson Hole is tomorrow, you can watch that closely.

 

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From your perspective what would be good, bad, or just even Steven?

 

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From an investment portfolio positioning perspective we're probably

 

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not trying to get too mired in the day-to-day details of it.

 

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I think it's fair to say that this is probably a pretty consequential speech or

 

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symposium.

 

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The real reason of that is yesterday we got the minutes from the latest

 

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FOMC meeting, which the market sort of reacted to but didn't really

 

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know how to interpret it because since that meeting took place we got a very

 

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soft CPI data print, a soft jobs report

 

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and a revision which, ultimately, led to somebody getting fired, and then we

 

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got a very hot PPI.

 

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There's a little bit of this mixed signals that's going on.

 

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This will be one of the best times for the market to hear

 

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from Jerome Powell.

 

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Also we get sort of the take of

 

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the framework evaluation that they've been undergoing for the last little bit

 

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and we'll get a little bit of more understanding as to how they're balancing

 

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inflation dynamics against the job dynamics, that dual mandate that they have

 

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which is kind of, as the data is suggesting, maybe suggesting slightly

 

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different things in the current market environment.

 

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Just through Jerome Powell's experience of giving these speeches and

 

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coming to the market during the Jackson Hole, there's been seven instances of

 

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it and two of them have been fairly consequential where the market's gone down

 

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more than 2.5%, and the other five have been somewhat benign.

 

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There's that downside risk that something happens.

 

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Do you think the discussion of sort of a dueling dual

 

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mandate is sort of, this is the thing?

 

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Yeah, and I think that's what the market was kind of focused on based off of

 

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minutes yesterday where the members themselves clearly see that there is risk

 

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to the inflation side of their mandate--

 

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There's some dueling going on.

 

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--with a jobs market that seems to be kind of at full employment, maybe there's

 

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a little bit of softness more recently, and in pockets there's certainly more

 

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softness than kind of a broad data would suggest.

 

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It speaks to this challenge that they

 

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have based off of all of the uncertainty, and we hate to use that word but

 

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tariffs are really kind of throwing sand in the gears to a certain extent of

 

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the global economy.

 

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One of the things that we like to look at, there's kind of two

 

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sub-segments of the US ISM manufacturing index, new

 

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orders and prices paid.

 

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What you typically see is that they rise or fall together.

 

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If there's a lot of demand you can generally get better prices.

 

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What we're seeing is kind of this jaws are opening where new orders are

 

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somewhat stagnating but prices are increasing.

 

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That's kind that stagflationary backdrop where you get slightly worse economic

 

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growth but a little bit of that inflationary surge.

 

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That continues to be sort of the base case that we have out of our Global Asset

 

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Allocation team based off of how this tariff narrative might unfold.

 

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A little bit of stagflation?

 

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A little bit.

 

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A little bit of stagflation.

 

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Should investors in this particular strategy, in ClearPath,

 

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worry less when there are moments like the 2nd of April?

 

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Everything went a bit crazy in the markets but then, again, by

 

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a week later there were some opportunities and people got back in and so on.

 

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What's your team doing in that?

 

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You would think the investors in ClearPath are thinking, don't worry, they got

 

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it. You got it?

 

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At Fidelity we're doing a lot and a little.

 

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We're spending a lot of time sort of reevaluating our research.

 

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When things move very quickly like that markets are repricing on a pretty

 

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dramatic level, whether it's growth expectations, valuations, and we're

 

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spending a lot time trying to understand does it make sense, is it

 

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overshooting, is it undershooting, where might there be opportunity for a

 

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longer term investor to really capitalize on things?

 

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I would say that during the actual sort of Liberation week where things

 

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were moving around 5%, 10% per day we weren't actually doing a lot

 

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of trading in the sort of asset allocation sense from some of

 

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our underlying portfolio managers. The equity and fixed income managers, they

 

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were able to capitalize on opportunities on a more idiosyncratic basis,

 

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companies that were really getting sold almost in a liquidation sense that they

 

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were able to buy at much more favourable valuations.

 

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We want to take a much longer term perspective to this.

 

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From a strategic perspective we're thinking very long term, almost multiple

 

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decades, in terms of the mixture of equities and fixed income that we want

 

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to have in the portfolio.

 

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From an active asset allocation perspective we still want to think a little bit

 

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over a more intermediate time horizon, maybe two to three to

 

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five years.

 

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Generally, we like to anchor around this valuation.

 

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Where do we see that the market is mispricing either they're a little bit too

 

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ambitious based off of what we think is durable cash flows for an asset or

 

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where are they pessimistic and there's actually, in our opinion, better growth

 

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that will materialize.

 

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On a day like that, maybe not acting as much on our side of things but

 

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there's certainly a lot going in with portfolios and the research agenda fills

 

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up very quickly and you have to move things around.

 

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One of the things that we see in the target date landscape is that

 

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target date investors are very good in periods of market volatility.

 

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We've seen it most recently. We saw it in 2022 when markets were declining

 

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pretty substantially from equities and fixed income in the inflation shock, and

 

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then in COVID as well. When we compare and contrast a target date investor

 

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to somebody who just does it themselves, they have a brokerage account or they

 

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just pick stocks or pick funds themselves, the difference in exchange

 

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activity is very substantial.

 

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Target date investors kind of just stay the course.

 

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They can continue to allocate whereas DIY investors kind of

 

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throw the kitchen sink at their portfolios to try and figure out what's going

 

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wrong and how can they reposition for the future.

 

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Generally, what we've been able to study through time is that's not the right

 

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thing to do. When we want to have this long term, maybe retirement-oriented

 

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investment horizon we really want to ensure that we're exhibiting good investor behaviours.

 

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

 

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

 

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Please take a few minutes to help us shape the future of Fidelity Connects

 

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

 

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

 

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

 

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That's fascinating. In terms of the active side of things where you would

 

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be, perhaps, moving things around because there's an opportunity sitting right

 

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in front of you, is that funds that you're leaning into,

 

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leaning out of, take us there a little bit.

 

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A little bit in terms of the underlying managers that we utilize but I'd say

 

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more generally...

 

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Anyone we know?

 

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Certainly. We use Andrew Marchese, Joe Overdevest, Will Danoff's in

 

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our portfolios. It's kind of the ethos of Fidelity is that there's a

 

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lot of all-star managers that make their way into our multi-asset portfolios

 

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and that helps to drive the security selection performance that we have but

 

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also brings diversification in a different way when we're able to complement

 

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Ramona Persad who has a slightly better value orientation versus Will

 

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Danoff who maybe has a little bit more growth and a core bias to his portfolio.

 

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That's one layer of diversification that we can bring, sort of active risk,

 

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if you want to call it that, in our ability to try and generate returns that

 

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exceed the benchmark.

 

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The other one would be, as you suggest, active positioning.

 

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That's the portfolio managers, Bruno, Andrew, and Brett, how do they

 

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see the world, the market environment that we're faced with and where are there

 

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opportunities. I mentioned that we like to focus on things where we see there's

 

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value, that's kind of one anchoring tenet to our process

 

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We recognize, like many people have probably said on this webcast, that

 

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valuation on its own doesn't really matter, you kind of need a catalyst.

 

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We're fortunate that we have a slightly longer time horizon in the target

 

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date space so valuation...

 

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So you can wait for something to...

 

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--can kind of materialize but we need to be mindful of things like the ongoing

 

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carry or the income profile of an investment, but also the trend,

 

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what's going on behind the scenes.

 

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One of those that we're clearly seeing today is the trend in U.S.

 

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equities. From a valuation perspective you might be suggesting that you should

 

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lean against U.S. equites but AI is a very dominant

 

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theme and when liquidity is abound in the market and there's a prevailing

 

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narrative that people seem to be gravitating towards you need to be cognizant

 

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of not only emphasizing the valuation side of things but also being

 

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aware from a risk perspective of other things like carry and the trend.

 

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Fascinating. Does that lead to a yes and, so yes

 

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U.S., AI, U.S. tech, and the rest of the world, because

 

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you talk about a trend from this year, certainly, the rest of the

 

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world trend has been a big one.

 

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We've, fortunately, been able to capitalize on that which has been fantastic.

 

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Maybe just to kind of provide some overarching colour of our positioning, we're

 

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overweight pretty much non-U.S.

 

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equities. We are overweight equities in general, overweight Canadian equities,

 

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international developed and emerging markets.

 

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Part of the punchline there, I would suggest, we've come into this year with

 

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fairly low valuations and with that very low expectations,

 

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expectations about growth, the potential for growth in the future as well, and

 

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that creates a little bit of asymmetry where we, at Fidelity, believe there's

 

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actually better potential for growth in some of these markets than

 

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the market is pricing in.

 

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And you can wait for it.

 

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We can wait for it. Say somewhere like

 

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EAFE or Europe, Japan, you actually get a very good payout,

 

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or distribution, whether it's the dividends or the buybacks.

 

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That's actually exceeding that of what you get in the U.S.

 

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You get a better valuation that you pay for it when you allocate

 

[00:16:23.983]

to those markets. There's, in our opinion, a little bit of asymmetry in

 

[00:16:28.087]

terms of lower valuations going in, lower growth expectations

 

[00:16:32.324]

that we think can surprise to the upside.

 

[00:16:34.560]

You really do get paid as investors for getting those surprises

 

[00:16:38.797]

right, whether missing the ones that surprise to the downside or capitalizing

 

[00:16:42.935]

on the surprises to the upside.

 

[00:16:45.304]

Back home in the U.S., back in the U.S., not back home, excuse me.

 

[00:16:48.941]

Well, that's where part of your team is.

 

[00:16:51.577]

In the U.S. we really do see this kind of durable theme

 

[00:16:55.948]

in AI that a lot of our underlying managers have been able, and rightly able,

 

[00:16:59.685]

to capitalize on but if you kind of go beyond the

 

[00:17:03.756]

Mag Seven you see more challenged profitability perspectives,

 

[00:17:07.726]

certainly, higher valuations for pretty much everything in the U.S.

 

[00:17:11.663]

The Mag Seven is maybe okay because you have such sustained growth that's

 

[00:17:15.734]

almost kind of eye-watering and it just continues to manifest.

 

[00:17:18.804]

If you go beyond that it's a little bit more challenged.

 

[00:17:21.673]

I think one of the things that the Global Asset Allocation team at Fidelity

 

[00:17:24.576]

does really well is researching these slightly more structural

 

[00:17:28.714]

trends in the marketplace.

 

[00:17:30.783]

One of themes that they've been highlighting to us over the last couple of

 

[00:17:33.685]

years has been one of maybe more challenged profit margin and profit

 

[00:17:37.723]

growth in the U.S.

 

[00:17:39.625]

What we've been doing is looking back over the last 60 years and kind

 

[00:17:43.629]

of comparing and contrasting productivity versus profit growth.

 

[00:17:47.366]

We've seen kind of a boom in the last decade of profit growth relative

 

[00:17:51.336]

to productivity. Part of the explanation, we believe, is that you've

 

[00:17:55.474]

had very favourable dynamics across globalization.

 

[00:17:59.678]

Interest rates have been very low and CapEx has also been very low.

 

[00:18:03.048]

And all that's changed.

 

[00:18:04.349]

Yes, all of that has changed. It doesn't really seem to matter for the Mag

 

[00:18:07.686]

Seven. They can spend as much as they want.

 

[00:18:09.888]

They do get slightly better interest rates.

 

[00:18:10.989]

Interest rates was a nothing.

 

[00:18:12.157]

Yes, but the profit margin story is maybe a little bit more

 

[00:18:16.228]

challenged on a going forward basis for all three of those reasons that seem to

 

[00:18:20.265]

clearly be changing in the U.S.

 

[00:18:22.167]

market.

 

[00:18:23.102]

That is a regime change, it's nothing new, people have been talking about this

 

[00:18:25.871]

for the last several months now and watching this.

 

[00:18:28.674]

There's a couple of questions going back to the process so why don't we take

 

[00:18:32.010]

all of that and sort of put it into how you work with it.

 

[00:18:34.780]

From a know your product perspective how do you suggest comparing ClearPath

 

[00:18:38.684]

portfolios against other portfolios?

 

[00:18:42.621]

This viewer goes on to say, I'm not sure how many other target date

 

[00:18:46.758]

funds are in the Canadian space.

 

[00:18:49.094]

Just a little bit of situating us.

 

[00:18:51.563]

Maybe to take the back half of that question first.

 

[00:18:54.366]

There's actually not that many target date funds in the retail side of

 

[00:18:58.437]

the Canadian marketplace. A lot of the Canadian target date players

 

[00:19:02.508]

have really focused almost exclusively on the institutional marketplace.

 

[00:19:06.745]

When we think about the Canadian target date landscape as a whole we generally

 

[00:19:10.349]

have most of the assets that sit in the institutional world.

 

[00:19:13.418]

We estimate that it's about $130 billion of target date assets in

 

[00:19:17.489]

the Canadian marketplace.

 

[00:19:19.191]

On the retail side it's much smaller.

 

[00:19:20.893]

It's maybe about $7 or $6 billion.

 

[00:19:23.428]

We would probably be the primary player in that space from a

 

[00:19:27.366]

retail availability for target date strategy.

 

[00:19:30.369]

I would say that in terms of the options for competitors in target

 

[00:19:34.473]

date space for retail advisors it's, certainly, a little bit more limited.

 

[00:19:39.244]

As it relates to the first part of the question and maybe some know your client

 

[00:19:42.814]

considerations, I would say that target date is going to be different.

 

[00:19:46.351]

It's going to act differently than just a traditional maybe multi-asset

 

[00:19:49.988]

investment fund or a balanced portfolio in the sense that it's going continue

 

[00:19:53.592]

to de-risk through time.

 

[00:19:55.827]

Depending on where we are in the lifecycle journey you're either going to have

 

[00:19:59.231]

a static allocation to a certain extent for younger individuals, or an

 

[00:20:02.701]

allocation that's becoming more conservative through time so it becomes a

 

[00:20:06.438]

little bit more challenging to fit it kind of one-to-one relative to a balanced

 

[00:20:10.342]

portfolio, whether it's an 80/20, a 60/40 or a 40/60.

 

[00:20:14.313]

We have portfolios that kind of align with all of those different categories

 

[00:20:18.317]

but you need to recognize that over time it's really meant to reflect the

 

[00:20:21.853]

investment allocation that somebody should have.

 

[00:20:23.889]

It's meant to kind of augment what a financial advisor is doing, having those

 

[00:20:27.426]

conversations and understanding the needs and sensitivities and how they

 

[00:20:31.463]

evolve of an investor. That's probably the biggest thing to be mindful

 

[00:20:35.601]

of in terms of making the allocations.

 

[00:20:37.369]

When you read about this fund and this strategy you'll hear a lot about

 

[00:20:41.206]

roll-down. Yes. Take us through that.

 

[00:20:43.742]

This is making use of when bonds are coming to maturity, essentially, and how

 

[00:20:47.713]

those fit into the portfolio. How do you describe it, not Investopedia, how

 

[00:20:52.484]

do you describe it?

 

[00:20:53.719]

Every target date provider has a different perspective on how they want to

 

[00:20:57.489]

manage that roll-down process.

 

[00:20:59.358]

We do it on a monthly basis. We believe that that gives a little bit more of a

 

[00:21:02.995]

gradual ride for individuals.

 

[00:21:05.264]

I'd say that this is very much a gradual ride.

 

[00:21:08.000]

We're not selling 5% equities and funding into bonds on

 

[00:21:12.137]

any given month. It really is like a couple of basis points that's occurring

 

[00:21:16.108]

over a number of years.

 

[00:21:18.644]

It's really meant to be this long, drawn out life cycle investment approach

 

[00:21:21.680]

where we recognize that as you transition from age 57

 

[00:21:25.784]

to 58 your needs don't change dramatically and therefore your portfolio

 

[00:21:29.788]

shouldn't also change dramatically.

 

[00:21:31.490]

It should be this managed de-risking process.

 

[00:21:35.127]

That's super interesting.

 

[00:21:36.862]

How do you make decisions around asset classes?

 

[00:21:39.831]

I mean, you just mentioned a couple of minutes ago we lived in a zero interest

 

[00:21:42.768]

rate world, it was a very globalized world, what was the third thing you said?

 

[00:21:46.838]

Inflationary, deflationary, rising rate [crosstalk].

 

[00:21:49.808]

You were just talking about how different the world was even a year ago in

 

[00:21:53.679]

terms of how we thought about everything from supply chains to the

 

[00:21:58.583]

outlook for inflation and so on.

 

[00:22:00.852]

How do you make decisions around asset classes, for instance, commodities.

 

[00:22:05.590]

You watch these cycles, you see how things should be further allocated to

 

[00:22:09.661]

or not, how do you sit down and make those decisions?

 

[00:22:11.897]

Commodities is an investment that ...

 

[00:22:14.266]

a small allocation actually goes a very long way in the context of diversifying

 

[00:22:18.070]

against equities and fixed income.

 

[00:22:20.238]

In target date that's the majority of our investments and it's really where the

 

[00:22:23.408]

risk comes from. When we think about the current environment that we're faced

 

[00:22:27.245]

with, one that's inflationary or has inflationary embers that are

 

[00:22:31.183]

still ruminating out there.

 

[00:22:33.185]

And has changed so much.

 

[00:22:34.720]

Has changed so much, yeah.

 

[00:22:36.521]

Part of that is just what drives equities and fixed income is when the

 

[00:22:40.592]

market is really focused on inflation that leads to generally higher

 

[00:22:44.830]

interest rates, higher discount rates and that hurts both equities and fixed

 

[00:22:48.033]

income. Having a little bit of an allocation to commodities is, certainly,

 

[00:22:51.770]

helpful as a diversifier.

 

[00:22:53.472]

Maybe it doesn't work in every single month or quarter but, certainly, helps to

 

[00:22:57.309]

balance the risk profile of our portfolios, and it's an active allocation that

 

[00:23:01.246]

we have today. Maybe if you just think about kind of the current market

 

[00:23:04.850]

backdrop, we still do have quite a lot of geopolitical noise, uncertainty

 

[00:23:08.787]

is still through the roof.

 

[00:23:10.856]

You have governments that are spending like we're in a wartime economy.

 

[00:23:14.626]

A lot of those things kind of continue to

 

[00:23:18.997]

have a belief that inflation could continue to fester in the economy for some

 

[00:23:22.601]

time.

 

[00:23:23.034]

The fiscal dominance story, absolutely.

 

[00:23:26.638]

What then of taking a look at how we all think

 

[00:23:30.609]

of bonds. It's also, for those same reasons, the world has changed and bonds

 

[00:23:34.646]

were something very different when they were 0%.

 

[00:23:37.716]

Then we've gone through this inflationary story and now we think deflationary

 

[00:23:41.486]

story.

 

[00:23:43.388]

There was a lot of discussion of make sure you have some bonds even if you

 

[00:23:45.991]

don't need them, even if the market doesn't crash you can just clip some

 

[00:23:48.627]

coupons, coupons will be fine.

 

[00:23:51.229]

Is that the right way to be thinking about this?

 

[00:23:52.931]

Bonds, fundamentally, are a much better spot today than they were many years

 

[00:23:56.535]

ago. You have very high interest rates.

 

[00:23:59.337]

I'd say that there's a little bit of a conversation about sort of spreads

 

[00:24:01.907]

versus just the sort of government level of interest rate and what's really

 

[00:24:05.911]

driving the underlying sort of interest rate that you get on a given bond.

 

[00:24:10.449]

Generally speaking, you end up with pretty strong absolute returns.

 

[00:24:14.019]

Now, we would say that generally there's going to be continued noise around

 

[00:24:17.756]

interest rates and it's going to lead to slightly higher volatility of those

 

[00:24:21.593]

investments than you might otherwise expect in sort of steady state market

 

[00:24:24.729]

environments. That doesn't warrant a decision to hold no bonds.

 

[00:24:29.301]

Bonds are still a great diversifier.

 

[00:24:31.002]

When you have a much better going in interest rate, if we do end up

 

[00:24:35.040]

in a recessionary period or markets just get spooked for some reason

 

[00:24:39.311]

there's certainly going to a strong counterbalance to equities in your

 

[00:24:42.714]

portfolios.

 

[00:24:43.982]

We have a general preference towards inflation-protected fixed income

 

[00:24:47.986]

over just nominal fixed income.

 

[00:24:50.021]

You get a little bit more of that inflation resiliency in there, a bit more

 

[00:24:53.959]

sensitivity to what's actually happening in interest rates, or inflation,

 

[00:24:57.462]

excuse me. The market is, I'd say, now starting to wake

 

[00:25:01.533]

up to the fact that maybe inflation is here to stay a little more so that

 

[00:25:05.203]

pricing is narrowing a little. It's not quite as advantageous as it was maybe a

 

[00:25:08.573]

year ago but it still kind of pays you to wait to a certain extent in

 

[00:25:12.577]

those investments.

 

[00:25:14.412]

That's kind of what we hear.

 

[00:25:16.848]

What do you do with such a long time horizon, which is great if you do have

 

[00:25:20.485]

lots of 25-year-olds under, but even if they're a few years later than that,

 

[00:25:23.889]

demographic story changes, regulations change,

 

[00:25:28.627]

all kinds of things change. You're, obviously, taking that into account but

 

[00:25:32.264]

maybe just give us a bit of a taster of what you've had to take a look out on

 

[00:25:35.667]

the demographic side of things and kind of regulatory landscape that you fold

 

[00:25:39.571]

into this.

 

[00:25:41.273]

Target date is exciting in that sense. We're not just looking at capital

 

[00:25:43.909]

markets, we also spend a lot of time on the Canadian themselves.

 

[00:25:47.279]

How is the Canadian changing? I talked about needs and sensitivities and that's

 

[00:25:50.749]

kind of through the lifecycle journey but the end goal is also giving

 

[00:25:54.819]

people an investment portfolio that they can draw down in retirement and will

 

[00:25:58.523]

give them some retirement income to supplement things like CPP or OAS.

 

[00:26:02.394]

What we're seeing on a

 

[00:26:06.665]

rising fashion is what we're calling this sort of encore era,

 

[00:26:10.602]

that's what our folks down in the U.S.

 

[00:26:12.337]

are dubbing it, essentially, what that is is this phased transition

 

[00:26:16.641]

of retirement where people are no longer going from working to

 

[00:26:20.579]

not working. They're having a little bit of a transition where they go from

 

[00:26:24.149]

working, to working part-time, or they work, they stop working, that doesn't

 

[00:26:27.786]

really work for them, and then they pick up a part-time job again.

 

[00:26:31.823]

We're seeing the early years of people's quote unquote retirement actually

 

[00:26:36.194]

having differentiated retirement income sources and one of them certainly

 

[00:26:40.332]

being employment income, which is a lot different than we've seen historically.

 

[00:26:44.636]

The other thing that maybe has been a blip on the radar in the last couple of

 

[00:26:47.739]

years, people are living longer.

 

[00:26:49.541]

Advances in medical technology and health care are really helping people get

 

[00:26:53.411]

more out of their life for longer, which has ramifications in terms of

 

[00:26:57.482]

how much people actually need to spend.

 

[00:26:59.217]

What we care a lot is studying that retirement duration.

 

[00:27:02.220]

We touched on that flexible retirement age side of things

 

[00:27:07.292]

and then the mortality experience on the other side.

 

[00:27:10.228]

It's the one minus the other that really gives you how much retirement income

 

[00:27:14.332]

do you need to try and fund.

 

[00:27:16.101]

There's a lot of different things that we're trying to triangulate in terms of

 

[00:27:18.970]

coming up with an investment solution that fits a wide swath of the Canadian

 

[00:27:22.974]

population.

 

[00:27:24.242]

Why is it called ClearPath? Maybe just take it back to the target date piece as

 

[00:27:28.313]

we kind of close out here.

 

[00:27:30.015]

Now, it's started to be used for other investment objectives,

 

[00:27:34.619]

like saving for a house or a child's retirement education vehicle as well, but

 

[00:27:39.591]

it's really meant to be this kind of set it and forget it, as I've mentioned

 

[00:27:42.894]

before, path towards retirement.

 

[00:27:45.697]

I guess there's a degree of clarity in terms of once you made the investment

 

[00:27:48.800]

decision, it's about ongoing contributions and kind of sitting back

 

[00:27:52.871]

and watching as your account balance grows.

 

[00:27:54.873]

Thank you so much for teaching us about this.

 

[00:27:57.142]

It's really great to meet you. Thank you, Jon.

 

[00:27:58.977]

Thanks for watching or listening to the Fidelity Connects

 

[00:28:02.914]

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

 

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

 

[00:28:35.880]

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

 

[00:28:39.718]

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

 

[00:28:43.655]

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

 

[00:28:47.659]

be construed as investment, tax, or legal advice.

 

[00:28:50.195]

It is not an offer to sell or buy.

 

[00:28:52.497]

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

 

[00:28:56.835]

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

 

[00:29:01.639]

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

 

[00:29:05.210]

Fees, expenses, and commissions are all associated

 

[00:29:07.545]

with fund investments.

 

[00:29:09.347]

Thanks again. We'll see you next time.