Fidelity®, a well-known asset management firm, proposes eight model portfolios comprising the firm’s mutual funds, predominantly actively managed ones. These portfolios are said to be risk-based, diversified, and constructed for a hypothetical investor to use as inspiration.

Use our model portfolios to help generate ideas

If you prefer to pick the funds you want in your portfolio, our model portfolios* show one way you might construct a well-diversified portfolio of Fidelity mutual funds based on your risk tolerance and financial situation. These combinations provide illustrations of potential opportunities for greater potential risk-adjusted returns over the long term.

In this post, we analyze historical performance of these model portfolios in relation to their reference ETF portfolios. Each reference portfolio has a fixed ETF membership and weights to represent average exposures of the model portfolio. Since each model portfolio is built from up to 12 funds, a reference portfolio may contain up to the same number of ETFs. A reference portfolio is constructed to most closely track periodic returns of the model portfolio, which is assumed to be rebalanced monthly to its target fund weights.

To cover the recent economic cycle, i.e. both the financial crisis and the subsequent market rebound, the common analysis period is from January 2008 through June 2018. The Fidelity Government Cash Reserves (FDRXX) money market fund is substituted by the SPDR® Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) that has similar characteristics.

Model portfolios are analyzed in the increasing risk order.

Conservative Portfolio

The 20/80 (i.e. 20% equity + 80% fixed income) Conservative model portfolio consists of 14% domestic stocks, 6% foreign stocks, 50% bonds, and 30% short-term assets, in nine mutual funds. Over the analysis period, this portfolio failed to add value over its reference ETF portfolio.

Cumulative RealAlpha™ for Fidelity Conservative Portfolio

The reference portfolio had a slightly lower volatility (measured by the annualized standard deviation of monthly returns) and comprised just six ETFs.

Reference Weights for Fidelity Conservative Portfolio

The reference positions were in the aforementioned BIL, iShares S&P 500 Growth ETF (IVW), iShares Intermediate-Term Corporate Bond ETF (IGIB, formerly CIU), Vanguard Total Bond Market ETF (BND), SPDR® Bloomberg Barclays TIPS ETF (IPE), and PWB – Invesco Dynamic Large Cap Growth ETF (PWB).

Moderate with Income Portfolio

The 30/70 Moderate with Income model portfolio consists of 21% domestic stocks, 9% foreign stocks, 50% bonds, and 20% short-term assets, spread over 11 mutual funds. Overall, this model portfolio added a small amount of value over its reference ETF portfolio; however, almost all of its relative gains were lost after mid-2015.

Cumulative RealAlpha™ for Fidelity Moderate with Income Portfolio

The reference portfolio had a slightly lower volatility and held just five ETFs.

Reference Weights for Fidelity Moderate with Income Portfolio

The reference positions were the aforementioned BIL, IVW, BND, and CIU (IGIB), as well as the iShares MSCI EAFE Small-Cap ETF (SCZ).

Moderate Portfolio

The 40/60 Moderate model portfolio consists of 28% domestic stocks, 12% foreign stocks, 45% bonds, and 15% short-term assets, implemented by 12 mutual funds. Since mid-2015, the model portfolio underperformed its reference portfolio.

Cumulative RealAlpha™ for Fidelity Moderate Portfolio

The reference portfolio had a lower volatility and was built with just five of the aforementioned ETFs.

Reference Weights for Fidelity Moderate Portfolio

Balanced Portfolio

The 50/50 Balanced model portfolio consists of 35% domestic stocks, 15% foreign stocks, 40% bonds, and 10% short-term assets, in 12 mutual funds. From mid-2013 onward, this model portfolio substantially underperformed its reference portfolio.

Cumulative RealAlpha™ for Fidelity Balanced Portfolio

The reference portfolio had a lower volatility and was built with just five ETFs.

Reference Weights for Fidelity Balanced Portfolio

The reference positions included the aforementioned IVW, BIL, and SCZ, as well as the iShares Core U.S. Aggregate Bond ETF (AGG), and iShares Morningstar Large-Cap Growth ETF (JKE).

Growth with Income Portfolio

The 60/40 Growth with Income model portfolio consists of 42% domestic stocks, 18% foreign stocks, 35% bonds, and 5% short-term assets, allocated across 12 mutual funds. From mid-2013 onward, this model portfolio significantly underperformed its reference portfolio.

Cumulative RealAlpha™ for Fidelity Growth with Income Portfolio

The reference portfolio had a lower volatility and was built with just five of aforementioned ETFs.

Reference Weights for Fidelity Growth with Income Portfolio

Growth Portfolio

The 70/30 Growth model portfolio consists of 49% domestic stocks, 21% foreign stocks, 25% bonds, and 5% short-term assets, allocated in 12 mutual funds. From late 2008 onward, this model portfolio significantly underperformed its reference portfolio.

Cumulative RealAlpha™ for Fidelity Growth Portfolio

The reference portfolio had a lower volatility and consisted of just six ETFs.

Reference Weights for Fidelity Growth Portfolio

The reference positions included the aforementioned IVW, SCZ, BIL, and BND, as well as the First Trust Consumer Discretionary AlphaDEX® Fund (FXD), and iShares California Muni Bond ETF (CMF).

Aggressive Growth Portfolio

The 85/15 Aggressive Growth model portfolio consists of 60% domestic stocks, 25% foreign stocks, 15% bonds, and no short-term assets, allocated in 12 mutual funds. From mid-2010 onward, this model portfolio significantly underperformed its reference portfolio.

Cumulative RealAlpha™ for Fidelity Aggressive Growth Portfolio

The reference portfolio had equal volatility and consisted of just five ETFs.

Reference Weights for Fidelity Aggressive Growth Portfolio

The reference positions included the aforementioned IVW, SCZ, CMF, and PWB, as well as the Invesco DWA Momentum ETF (PDP).

Most Aggressive Portfolio

The 100/0 Most Aggressive model portfolio consists of 70% domestic stocks, 30% foreign stocks, and no bond or short-term assets, built from nine mutual funds. From early 2008 onward, this model portfolio significantly underperformed its reference portfolio.

Cumulative RealAlpha™ for Fidelity Most Aggressive Portfolio

The reference portfolio had a lower volatility and consisted of just five ETFs.

Reference Weights for Fidelity Most Aggressive Portfolio

The reference positions included the aforementioned SCZ, IVW, and PDP, as well as the First Trust US Equity Opportunities ETF (FPX), and iShares U.S. Consumer Services ETF (IYC).

Conclusion

Over the past eight and a half years, the majority of Fidelity model portfolios failed to outperform their reference ETF counterparts. Only the Moderate with Income portfolio added a small amount of value on a cumulative basis. With nine to 12 distinct mutual funds, the model portfolio were also much more complex than their reference portfolio of five to six ETFs. From reference positions in IVW, JKE and similar ETFs, it is evident that all model portfolios had a strong tilt toward growth equities. Finally, although this analysis used net total returns of both mutual funds and ETFs, despite using several low-cost “enhanced” index funds model portfolios had higher expense ratios than those of their reference portfolios.

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