Understanding Fidelity's Blended Investments Strategy

Blended funds are a type of mutual fund that invests in both growth stocks and value stocks. Portfolio managers of these funds often pursue a strategy known as growth at a reasonable price (GARP), focusing on growth companies while being mindful of traditional value indicators. Blended funds can be further categorized based on their specialization in small, medium, or large-cap stocks. They are considered riskier than balanced funds because they primarily invest in the stock market. Fidelity Freedom Funds are an example of a blended fund offered by Fidelity. These funds are target date funds that become more conservative as the target retirement date approaches.

Blended funds are a type of equity fund

Growth stocks are stocks of companies that are expected to grow faster in terms of revenue or cash flow than their competitors. These companies tend to reinvest their profits to expand their operations. They rarely pay dividends, as their focus is on growth. Growth stocks are riskier but offer higher upside potential.

On the other hand, value stocks are stocks trading at a share price that is considered a bargain. Value stocks are considered safer investments than growth stocks because they have already proven their ability to generate profits based on a proven business model. Value stocks also tend to pay dividends to their investors.

Fidelity offers a range of blended funds, such as the Fidelity Freedom® Funds, which are target date funds that help take the guesswork out of investing for retirement. These funds invest in a mix of different types of assets, including domestic and international equity funds, bond funds, and short-term funds, and gradually become more conservative as the investor's retirement year approaches.

They contain only stocks and no fixed-income securities

Blended funds, also known as "blend funds", contain only stocks and no fixed-income securities. They are a type of equity fund that holds a mix of both growth and value stocks. The goal of these funds is to appreciate in value through capital gains achieved by share price appreciation. Blend funds can be further categorized according to their specialization in small, medium, or large-cap stocks.

Growth stocks are stocks of companies that are expected to grow faster in terms of revenue or cash flow than their competitors. These companies reinvest their profits to expand, for example by hiring new workers, buying new equipment, or acquiring other companies. Growth stocks are riskier and do not usually pay dividends, but they offer higher upside potential.

On the other hand, value stocks are stocks of companies whose share prices do not reflect their fundamental worth. Value stocks are considered bargains and are usually identified by portfolio managers who use a strategy known as "growth at a reasonable price" (GARP). Value stocks are generally safer investments than growth stocks because they have already proven their ability to generate profits based on a proven business model.

Blended funds can be a good choice for investors who want exposure to both growth and value stocks and the potential for higher returns, while also benefiting from dividend payments. However, it is important to note that blend funds are considered riskier than balanced funds, which contain a mix of fixed-income instruments and equities, because their primary investment is in the stock market.

They are higher risk as their primary investment is in the stock market

Blended funds are a type of equity fund that holds a mix of both growth and value stocks. The goal of these funds is to appreciate in value through capital gains achieved by share price appreciation. Blend funds can be further categorized according to their specialization in small, medium, or large-cap stocks.

While blended funds can be an attractive investment option, they are considered higher risk as their primary investment is in the stock market. This means that they are more volatile and susceptible to market fluctuations. When the stock market performs poorly, blend funds can lose a significant portion of their value.

For example, consider the Fidelity Freedom® Funds, which are target date mutual funds designed to simplify retirement investing. These funds invest in a mix of different asset types, including stocks, bonds, and short-term funds, and become more conservative as the target retirement date approaches. While these funds offer diversification and ongoing professional management, potential investors should note that they come with certain risks. The share price of these funds can fluctuate, and there is no guarantee of sufficient retirement income.

Fidelity also offers other types of funds, such as the Fidelity Asset Manager® Funds, which allow investors to choose an asset mix based on their risk tolerance, and the Fidelity Fund Portfolios–Income, which provide a focus on interest and dividend income over a range of long-term risk levels.

In summary, blended funds, including those offered by Fidelity, can provide a mix of growth and value stocks, but it's important to remember that they carry higher risks due to their primary investment in the stock market.

They are categorised by specialisation in small, medium, or large-cap stocks

Blended funds are a type of equity fund that holds a mix of both growth and value stocks. They are categorised by their specialisation in small, medium, or large-cap stocks. The size of the companies in which the fund invests is measured by the total value of all its outstanding shares, or market capitalisation.

Fidelity's StyleMaps use a combination of recent and historical Morningstar® data to categorise this size/style dichotomy. On the horizontal axis, the fund is categorised as value, blend, or growth. On the vertical axis, the fund is categorised by market capitalisation. "Small" is less than $2 billion in market cap, "medium" is $2 billion–$10 billion, and "large" is greater than $10 billion.

Blended funds are considered riskier than balanced funds because their primary investment is in the stock market. They are best suited for risk-tolerant investors with a longer time horizon.

Blended funds can be created by portfolio managers

Blended funds, also known as blend funds, are a type of equity fund that holds a mix of both growth stocks and value stocks. They are considered riskier than balanced funds because they only contain stocks and no fixed-income securities. The primary investment in blend funds is in the stock market, and they aim to appreciate in value through capital gains from share price appreciation. Blend funds can be further categorized based on their specialization in small, medium, or large-cap stocks.

Fidelity offers a range of blended funds, including the Fidelity Freedom® Funds, which are target date funds designed to simplify retirement investing. These funds become more conservative as the target retirement date approaches. Fidelity also provides a variety of mutual funds, allowing investors to explore different asset classes, such as domestic equity, international equity, and sector funds.

Portfolio managers can create blended funds by investing in both growth and value stocks. Many managers of these funds pursue a strategy called "growth at a reasonable price" (GARP), focusing on growth companies while also considering traditional value indicators. This approach aims to balance the potential for capital appreciation with the risks associated with growth stocks.

When creating a blended fund, portfolio managers consider two main categories: style and size. Style refers to whether the fund is categorized as value, blend, or growth, while size is measured by market capitalization. By combining different styles and sizes, portfolio managers can construct a diversified blend fund that aligns with the risk tolerance and financial goals of the investor.

In summary, blended funds are a type of equity fund that combines growth and value stocks, offering both capital appreciation potential and a level of risk management. Portfolio managers can create these funds by strategically investing in a mix of stocks based on their style and size characteristics.

Frequently asked questions