A Quality Research Group Supports Fidelity Balanced

Key Morningstar Metrics for Fidelity Balanced

• Morningstar Medalist Rating: Neutral
• Process Pillar: Average
• People Pillar: Average
• Parent Pillar: Above Average

A potent group of stock-pickers and bond-fund managers supports Fidelity Balanced, though its relatively new lead manager has a short track record as an asset allocator.

Manager Christopher Lee brings ample stock-selection experience to the table, yet he does not have a public record managing a balanced fund prior to this one. He had six months of onboarding when he became the sole lead manager in January 2023—a tight timeline to fully grow into an allocation role, especially given the flexibility he has adjusting the stock/bond split here. Though his working relationships with the equity sector managers and the fixed-income team are encouraging, some evidence of allocation acumen will help build confidence in the new leader.

At any given moment, the portfolio‘s stock/bond split can shift by up to 10 percentage points in either direction per Lee‘s market views. This approach contrasts with the Fidelity Global Asset Allocation team’s research-intensive approach, though Lee is looking to leverage more of the firm’s research complex in his process going forward, which would likely benefit shareholders here. The fund’s historical overweighting in equities and tilt toward growth stocks have bolstered returns during bull markets, as evidenced by the top-decile returns in benign years like 2021. On the other hand, it leaves Fidelity Balanced vulnerable in market crises, including the first three quarters of 2022, when its 22.2% loss was more than 2 percentage points deeper than its 60% S&P 500/40% Bloomberg US Aggregate Bond Index composite benchmark’s 20.1% loss. Fidelity Balanced slid to the worst decile of its Morningstar Category. Deep drawdowns can make it hard for investors to stick with it over the long term.

On the equity side, stock selection drives performance. Fidelity Balanced ties the sector weightings to the S&P 500, allocating assets proportionally to Fidelity’s underlying sector managers, each with their own investment philosophies. This leaves the fund vulnerable to underlying personnel changes, and six out of 10 sectors have seen manager changes since 2020. Amid the turnover, Fidelity’s deep research group provides reassurance, but more stability would be ideal.

Fidelity‘s well-regarded core bond team manages the fixed-income sleeve, albeit with higher credit risk than the benchmark, which can dilute the sleeve’s role as a ballast in stock market drawdowns. The fixed-income portfolio’s tilt toward BBB rated bonds, combined with the fund’s historically consistent overweighting in equities, contribute to Fidelity Balanced’s 16.3% standard deviation over Lee and his predecessor’s combined tenure (September 2008–September 2024), well above the category index’s 12.1% and blended benchmark’s 14.2%.

For investors who are looking to outdo the typical U.S. 60/40 portfolio over the long term but can stomach stinging downturns, Fidelity Balanced is worth considering.

Fidelity Balanced: Performance Highlights

The fund’s institutional share class has produced better absolute returns than its moderate allocation Morningstar Category average peer and Morningstar Moderate Target Risk Index category benchmark on a rolling three-year basis since 2012. Though benchmarked against the typical balanced 60% equity/40% portfolio, the fund’s equity exposure has gone up to 73% in November 2021 and has averaged about 64%, highlighting Fidelity Balanced’s aggressive posture.

The fund‘s rolling three-year alpha against its category index has almost always been positive from September 2008 to September 2024, which spans the tenure of Lee’s predecessor, as well as Lee’s first year as sole lead. Fidelity Balanced’s consistent overweighting in US equities, particularly growth stocks, bolstered returns over the past decade as US growth stocks have trounced the rest of the world; the category benchmark and the average peer tend to have higher allocations to non-US stocks.

The aggressive allocation stance occasionally results in Fidelity Balanced taking nosedives when stocks sell off, such as the last quarter of 2018, the first quarter of 2020, and the first three quarters of 2022. In each instance, the fund lost 2-5 percentage points more than its own custom benchmark of 60% S&P 500/40% Aggregate Index and landed in the worst quintile of its category. It also has exhibited an elevated downside-capture ratio versus this benchmark and category peers in the past several years. Following the stress periods, though, the fund made a rebound back to the top quartile and rewarded investors who stayed faithful.