Inside Look: Investing for a Recovery

[Pages:2]FIDELITY? WEALTH SERVICES | STRATEGIC ADVISERS LLC

Inside Look: Investing for a Recovery

"Recession and early-cycle recovery are typically the best times for us to add value, and that's exactly what we did."

Niall Devitt, Portfolio Manager, Strategic Advisers LLC

THE BACKGROUND

Understanding subtle shifts in the business cycle can create opportunities to add significant value within a challenging economic environment.

THE OPPORTUNITY

Industry experts and research professionals provided valuable insight to cut

through bleak headlines and guide investment timing.

OUR RESPONSE

Following a data-driven approach, Strategic Advisers targeted investment opportunities

in key areas of the market.

WHY IT MATTERS TO YOU

By utilizing our research teams and investment expertise, we boosted client returns at crucial

moments within the business cycle.

In the spring of 2020, the United States descended into economic lockdown. As COVID-19 rates climbed and the outlook appeared increasingly uncertain, the stock market reacted accordingly. The S&P 500? Index plunged 34%.1 Economic indicators sounded the alarm that a recession was imminent.

A recession exists in two phases: 1. The onset 2. The bottoming

The onset is the worst part of a recession. After the initial shock, the bottoming phase begins. During this phase, conditions are still bad. However, things start getting worse at a slower pace. This can be a nuanced distinction and one that is hardly reassuring to those living through it. However, for an experienced, disciplined investment team, knowing this distinction can provide an excellent opportunity to deliver significant value to clients.

As part of our systematic investment process, we collaborated with Fidelity's Asset Allocation Research Team (AART). By interpreting economic signals, we picked up on the bottoming phase by the summer of 2020. Additionally, in August 2020, Fidelity's Health Care Team informed us that vaccines appeared safe and effective and could control the virus. Furthermore, the U.S. government had prepurchased millions of doses. In our view, it was just a matter of time until mass vaccination efforts were underway and the economy would begin to reopen.

To the average investor, the outlook appeared far more dismal: The unemployment rate was over 10% that summer. Americans had just witnessed gross domestic product (GDP) plummet by more than 31%. Early midsummer saw an increase in COVID-19 cases, with spikes predicted as autumn approached.

As early as June 2020, while still in a recession, we began to gradually tilt allocations toward investments that have historically bounced back the highest during early-cycle recoveries. Broadly speaking, these investments include small- and midsize-company stocks and value stocks. To see what we could expect in the United States, we analyzed consumer activity in countries that were implementing successful vaccine rollouts ahead of us. We investigated consumer activity by closely monitoring the following:

? Google MapsTM and Apple Watch? mobility data: People were traveling greater distances.

? Airport security checkpoints: People were traveling more.

? Credit card activity: People were spending their money farther away from their homes.

Guided by our research, we invested in strategies that held stocks of airlines, hotels, and other leisure companies.

In late summer 2020, according to AART, the U.S. economy had moved from recession into early-cycle recovery. Recessions and earlycycle recoveries are the best times for Strategic Advisers to add the most value to client accounts by utilizing the business-cycle framework for investing.

Our increased allocations to strategies investing in small- and midsize-company stocks and value stocks added meaningful value to client accounts during this period. Since the end of August, these stocks have significantly outperformed both growth stocks and the broader market.2 Furthermore, airline and hotel stocks outpaced the broader market by a wide margin.3

Amid the grim outlook of 2020, Strategic Advisers saw past the headlines to seek out opportunities that benefited our clients.

FIDELITY? WEALTH SERVICES | STRATEGIC ADVISERS LLC

1S&P 500? Index return, 2/20/2020?3/23/2020. 2Broad-Market Stocks are represented by the Dow Jones U.S. Total Stock Market Index. 3S ee performance table below for detailed returns.

Cumulative Returns (%): August 31, 2020?May 31, 2021

Small-Company Stocks

46.42

Midsize-Company Stocks

34.70

Value Stocks

31.50

Airline Stocks

65.86

Hotel Stocks

46.91

Growth Stocks

14.10

Broad-Market Stocks

24.27

Small-Company Stocks are represented by the Russell 2000? Index, Midsize-Company Stocks are represented by the Russell Midcap? Index, Value Stocks are represented by the S&P 500? Value Index, Airline Stocks are represented by the Dow Jones U.S. Airlines Total Stock Market Index, Hotel Stocks are represented by the Dow Jones U.S. Hotel Total Stock Market Index, Growth Stocks are represented by the S&P 500? Growth Index, and Broad-Market Stock are represented by the Dow Jones U.S. Total Stock Market Index. Indexes are unmanaged. It is not possible to invest directly in an index.

The Russell 2000? Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000? Index is a subset of the Russell 3000? Index, representing approximately 10% of the total market capitalization of that index. The Russell 2000? Index includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000? is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure that larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

The Russell Midcap? Index is a market capitalization?weighted index designed to measure the performance of the mid-cap segment of the U.S. equity market. The Russell Midcap? Index contains approximately 800 of the smallest securities in the Russell 1000? Index.

The S&P 500? Value Index measures value stocks using three factors: the ratios of book value, earnings, and sales to price. S&P Style Indices divide the complete market capitalization of each parent index into growth and value segments. Constituents are drawn from the S&P 500? Index.

The Dow Jones U.S. Airlines Total Stock Market Index is constructed from the airline stock constituents of the Dow Jones U.S. Total Market Index.

The Dow Jones U.S. Hotel Total Stock Market Index is constructed from the hotel stock constituents of the Dow Jones U.S. Total Market Index.

The S&P 500? Growth Index measures growth stocks using three factors: sales growth, the ratio of earnings change to price, and momentum. S&P Style Indices divide the complete market capitalization of each parent index into growth and value segments. Constituents are drawn from the S&P 500? Index.

The Dow Jones U.S. Total Stock Market Index is a float-adjusted, market capitalization?weighted index of all equity securities of U.S.-headquartered companies with readily available price data.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

The views expressed in this commentary were prepared by Strategic Advisers LLC, the portfolio manager, according to information obtained from sources believed to be reliable but not guaranteed. This commentary is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The information and opinions presented are current only as of the date of writing, without regard to the date on which you may access this information. All opinions and estimates are subject to change at any time without notice.

Investment decisions should be based on an individual's own goals, time horizon, and tolerance for risk.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal. Investing in bonds involves risk, including interest rate risk, inflation risk, credit and default risk, call risk, and liquidity risk.

Fidelity? Wealth Services provides non-discretionary financial planning and discretionary investment management through one or more Portfolio Advisory ServicesSM accounts for a fee. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser, and Fidelity Personal Trust Company, FSB (FPTC), a federal savings bank. Nondeposit investment products and trust services offered through FPTC and its affiliates are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, are not obligations of any bank, and are subject to risk, including possible loss of principal. Discretionary portfolio management services provided by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FPTC, FBS, and NFS are Fidelity Investments companies.

Fidelity, Strategic Advisers, and the Fidelity Investments and pyramid design logo are registered service marks of FMR LLC. Portfolio Advisory Services is a service mark of FMR LLC. The third-party trademarks appearing herein are the property of their respective owners.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

? 2021 FMR LLC. All rights reserved. 928125.6.0

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