Home Adviser Fund Update Fidelity Leans Into Themes Published December 11, 2019 Table of Contents Fidelity Leans Into Themes Neff Steps Down, Grenier Steps In Is Your Portfolio Ready for the New Year? Fidelity Leans Into Themes The latest theme in investing is investing in themes. You’ve heard of technology funds and energy funds. Well, now there are thematic funds, and Fidelity is leaning into the trend and will soon offer no fewer than 24 separate thematic funds and ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index.. This emphasis on themes is recent: After rolling out four thematic funds in November, just after Thanksgiving Fidelity filed with the SEC for eight more funds to be launched in Q1 next year. But not all of Fidelity’s “theme” funds are spring chickens. The fund giant is herding several of its existing funds under its new thematic umbrella, including the venerable Fidelity Select Environmental and Alternative Energy Portfolio (FSLEX), which launched in 1989. Each of the 24 thematic funds and ETFs is to be aligned with one of five themes identified by the company: disruption; megatrends; environmental, social and corporate governance (ESG); outcome-oriented; and differentiated insights. Thematic funds may invest in companies across a range of sectors, sizes and styles; the link between each of the funds’ investment mandate is adherence to a “theme,” a broad-based thesis about the direction of the overall economy or society (for example, that the desire of investors to direct their funds to ethical companies means that such companies will outperform their competitors). At Adviser Investments, we’ve long been advocates of active management, and in some respects thematic funds allow good managers the greatest possible scope to concentrate on their best ideas. But we’d be cautious before advising investors to take the plunge into this trendy new style of fund. Since each fund is idiosyncratic, finding an appropriate benchmark to compare them to is tricky. The wide-ranging themes provide few hard boundaries to demarcate which companies are suitable investments for a given fund, tempting managers to chase trends rather than making clear-eyed assessments of a firm’s prospects. So far, most of Fidelity’s new thematic lineup is available only to individual investors and through workplace retirement plans (Fidelity StocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. for Inflation ETFA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index. will also be available through third-party financial advisers). The mutual funds have no investment minimums, while the ETF has an investment minimum of one share. Source: Fidelity. * * * Neff Steps Down, Grenier Steps In Fidelity’s head of asset management, Steve Neff, will retire in February. Stepping into his shoes will be Bart Grenier, who is currently global head of Asset Management at Fidelity International Limited in London. Grenier held a string of leadership roles in over a decade at Fidelity before jumping ship in 2005 to assume a new role as CIO and managing director at DB Advisors, a division of Deutsche Asset Management. He followed that with a stint as chairman, CEO and CIO at The Boston Company. Neff was in the asset management role for less than a year before deciding to retire. He came to the position from the firm’s technology and global services division, his background highlighting the firm’s push into the cloud and advancements in Fidelity’s use of artificial intelligence and machine learning. We don’t see any reason for shareholders in Fidelity’s funds to be concerned by this move. * * * Is Your Portfolio Ready for the New Year? With 2019 winding down, investors’ thoughts are turning to the year ahead. But there’s still time in 2019 to make the most of 2020 by making a few key moves in your portfolio. We’ve laid out seven steps below that all investors should consider before they head out for some holiday and New Year’s cheer. Step One: Max Out Tax-Deferred Accounts. The more of your assets you can keep growing tax free, the better off you’ll be in retirement—and that means making sure you’ve made your maximum annual contribution to any 401(k)s, IRAs and other tax-deferred investment accounts you have. Investors over 50 can also make additional ‘catch-up’ contributions to your 401(k) and IRAA type of account in which funds can be saved and invested without being subject to tax until the account holder reaches retirement age., up to $6,000 in your 401(k) and an extra $1,000 in an IRA in 2019. Step Two: Rebalance Your Portfolio. During the course of the year, you’ve likely seen some of your investments outperform others—and that can leave you taking on a different level of riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. than you intend. An investor who started 2019 with 50-50 allocation of stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. and bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. may find themselves with a 55-45 ratio in December given the strong performance of many equitiesThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. this year. Rebalancing in this case would simply mean taking some of the gains from your stocks and redeploying them to your bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. holdings, adjusting back to the original ratio to keep your long-term strategy on track. The math is simple, but the mindset can be tricky: Rebalancing means selling your “winners” and adding to the “losers” in your portfolio. An investment manager can help determine whether rebalancing is beneficial to you in a given year, and make any necessary adjustments without emotional attachment. Step Three: Check Your Distribution Dates. We’ve touched on it before, but it’s well worth repeating—many funds from Fidelity, Vanguard and other providers will be making distributions this year, making it important to check up on any funds you own in a taxable account to see if you’ll owe capital gains taxes. Triple-check the distribution dates for any fund you’re considering buying into before year-end—get in on the wrong date and you may owe taxes when you haven’t yet made any real gains. Step Four: Take Losses. If you have a loss in a fund, you can sell out of it to avoid a distribution, rather than have the distribution add to your tax bill. Whether that’s a wise move depends on the size of the distribution, the size of your loss and the fees you may incur by selling. (This does not apply to tax-deferred accounts like IRAs.) Step Five: Defer Reinvesting. If you do have income or capital gains distributions, we recommend sending them to your money market fund rather than automatically reinvesting in the fund that generated them. By going to cash, you can use the funds to rebalance or save yourself some taxes by reinvesting after the fund’s distribution date. Step Six: Take RMDs. If you’re over 70½ years old, the IRS requires you to begin making withdrawals from your tax-deferred accounts—the smallest sum you must take in any given year is your required minimum distribution (RMD)A required minimum distribution is the amount of money that must be withdrawn each year from tax-deferred retirement accounts once the beneficiary reaches retirement age (72, according to IRS rules).. We answer many common questions about RMDs here, but the most important thing to know about them is that failing to take the proper amount can incur steep tax penalties. Please don’t hesitate to reach out to your adviser if you need any help figuring out how much to take. Step Seven: Check in Before Year End. We know taxes are one of the last things anyone wants to think about during the cheer of the holiday season, but a quick call now can prevent bigger headaches and bills come April. Be sure to consult with an investment professional before restructuring a portfolio or moving assets to avoid distributions. At Adviser Investments, we have the experience and expertise to help guide our clients through the year-end tax maze—it’s one way we can help make the holiday season a little less stressful for you. To read more about year-end portfolio moves, please click here to get your copy of 2019 Year-End Thoughts for Your Portfolio and Personal Life. About Adviser Investments Adviser Investments is a full service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994, and have more than 3,500 clients across the country and over $6 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, with particular expertise in Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. Our minimum account size is $350,000. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868. Disclaimer: This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Our statements and opinions are subject to change at any time, without notice and should be considered only as part of a diversified portfolio. Mutual funds and exchange-traded funds mentioned herein are not necessarily held in client portfolios. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. You may request a free copy of the firm’s Form ADV Part 2A, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. We do not provide legal or tax advice, nor sell insurance products. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Always consult an attorney or tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs. © 2019 Adviser Investments, LLC. All Rights Reserved.