Fidelity Investments has launched the Fidelity Sector Investigator, an interactive calculator that leverages proprietary Fidelity research to help financial advisors build more effective equity portfolios through potential sector performance opportunities.
Launched by Fidelity Financial Advisor Solutions, the Fidelity unit that provides mutual funds and other products to financial advisors, the Fidelity Sector Investigator is part of a strategy to help advisors with critical portfolio construction decisions.
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The calculator allows financial advisors to explore different scenarios in the business cycle, enabling them to quantify the actionable trade-offs they face when leveraging sector exposure in portfolio construction.
Fidelity research found that sectors accounted for 22% of the return differentials across U.S. stocks, more than style (13%) or size (4%) combined.
In addition, the changing phases of the business cycle typically coincide with shifts in potential equity sector earnings. As such, advisors can help improve model portfolios through cyclical tilts that leverage these shifts.
While it does not predict or make any projections about the future business cycle or any particular investment, the Fidelity Sector Investigator helps advisors:
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By GlobalData-Investigate the assumptions and evaluate the outlook for the U.S. business cycle over time horizons ranging from one to 10 years
-Examine the cyclical outlook embedded in their current mix of U.S. equity managers
-Build a hypothetical total return outlook for each equity sector over selected time horizons
-Explore portfolio implications of targeted risk/return levels, and of overweighting or underweighting sectors compared to a market benchmark.
Research showed that during the mid-cycle, the macro-environment is typically characterized by modest inflation, a neutral monetary policy, strong credit growth and solid profit growth among businesses.
In this phase of the business cycle, economically sensitive sectors such as industrials and technology have tended to outperform the equity market, while defensive sectors such as utilities typically have tended to underperform.
Fidelity Financial Advisor Solutions senior vice president Robert Litle said, "When making decisions on equity investments, many advisors look at the market cap profile of their investment mix, as well as growth and value factors. Many overlook their sector mix, even though it has been a large driver of equity performance."
Litle added, "Unlike market cap and growth and value factors, sectors offer consistent classifications and performance drivers.Because companies in the same sector are alike, they tend to have similar sales and profit drivers and often react similarly to changes in the economy. The Fidelity Sector Investigator helps advisors add value for their clients by taking advantage of the large performance dispersion between the best and worst performing sectors at any point in the business cycle."
The Fidelity Sector Investigator builds on Fidelity’s depth of perspectives and solutions in helping advisors with portfolio construction.
Last year, Fidelity Financial Advisor Solutions introduced a dedicated Portfolio Construction Guidance team, which includes strategists and quantitative specialists who partner with Fidelity’s wholesalers to help advisors resolve challenging portfolio tradeoffs.
In February 2014, the team launched a first-of-its-kind Fidelity Yield InvestigatorSM calculator to help financial advisors quantify the trade-offs in bond investing. Since its launch, nearly 1,900 advisors have accessed the calculator.
Together, the Fidelity Sector Investigator and the Fidelity Yield Investigator make rigorous portfolio construction analytics available at no cost, enabling financial advisors to test portfolios in different hypothetical market environments in a simple, clear and interactive format.
