Fidelity Balanced Leverages Research for Shareholder Benefit

Fidelity Balanced FBALX benefits from the collective caliber of the firm’s stock-pickers and a few seasoned underlying managers, but its relatively new lead manager has a short track record managing a balanced fund.

Manager Christopher Lee brings ample stock-selection experience to the table, yet he does not have a public record managing a balanced fund. 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. Although his working relationships with the equity sector managers and the fixed-income team is 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 to 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 the strategy vulnerable in market crises, including the first three quarters of 2022, when the fund’s 22.2% loss was more than 2 percentage points deeper than its 60% S&P 500/40% Bloomberg U.S. Aggregate Bond composite benchmark’s 20.1% loss and the fund slid to the worst decile of the 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. The strategy 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 strategy 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 consistent overweighting to equities, contributes to the strategy’s 16.6% standard deviation over Lee and his predecessor’s combined tenure (September 2008-September 2023), well above the category index’s 12.3% and blended benchmark’s 14.4%.

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