Fidelity Wealth Builder Fund NFO Presentation

8/14/2019 Fidelity Wealth Builder Fund NFO Presentation

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FIDELITY INTERNATIONAL

Fidelity Wealth Builder Fund

January 2009


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Where are we ?

Last year has seen unprecedented volatility in equity market

BSE Sensex has reached 2006 levels

Economic growth is slowing

Inflation is easing

Central banks across the globe taking measures to provide growth stimulus

Sharp rally in Government bonds

Oil down approx 70%* from all time high in July 2008

* As on 31st December 2008


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You get recessions, you have stock market declines.

If you don't understand that's going to happen, then

you're not ready, you won't do well in the markets

Peter Lynch

Peter Lynch was the portfolio manager of the Fidelity Magellan Fund from May 1977 to May 1990.The Fund had $14 billion in assets when Peter Lynch retired in 1990. He is currently a ResearchConsultant with Fidelity Investments, USA.


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Markowitz and Modern Portfolio Theory

Investors should look at risk as well as return

Investors can construct portfolios which optimise the level of risk for

any expected level of return

Harry

Markowitz

1952

What should investors be doing?

Stick to basic principles of investing


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Portfolio structuring

Why seek portfolio balance?

Risk & Return

The principle of diversification

The six facets of a diversified portfolio

Asset allocation

Investment styleGeographic location

Market cap bias Sector exposure

Security specific risk


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The case for asset allocation


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Importance of asset allocation

Asset allocation is regarded as one of the important decisions an investor makes:

91.5% of investment return variability is driven by asset allocation decisions

8.5% of investment return variability is attributed to security selection and markettiming

Impactonvaria

bility

ofreturn

Asset allocation Security selection

91.5%

8.5%

Source: Brinson, Hood, and Beebower Determinants of Portfolio Performance II an update Financial Analysts Journal, May/June 1991


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Asset classes may not move in the same direction

Performance of equities, debt and cash is based on BSE Sensex, NSE G-Sec Composite Index and NSE T-Bill Index respectively. Performance of

composite is calculated as average of equities, debt and cash. CAGR for composite is based on assumption that composite is rebalanced at the end ofevery calendar year.

Effective portfolio diversification can be achieved through

combination of asset classes

Equities Debt Cash Composite

2001 2002 2003 2004 2005 2006 2007 2008

22.46% 15.68% 72.89% 13.08% 42.33% 46.70% 47.15% 20.78%

8.98% 8.55% 29.43% 4.86% 17.19% 17.87% 20.10% 7.73%

4.52% 6.45% 9.95% 4.64% 5.78% 6.14% 7.87% -7.98%

-17.87% 3.52% 5.45% -3.15% 3.47% 0.76% 5.29% -52.45%

Source: ICRA MFIE

8 year CAGR

Equity: 11.71% Cash: 6.62%

Debt: 9.06% Composite: 11.27%


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Asset allocation can reduce downside risk

For portfolios invested in debt and equity. Assuming 8% return on debt component

Portfolioeq

uity

exposure

If equities go down by

15%

30%

50%

10% 20% 30%

5.30%

2.60%

-1.00%

3.80%

-0.40%

-6.00%

2.30%

-3.40%

-11.00%

For illustrative purpose only


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Asset allocation in current environment


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Asset allocation and economic cycle

Inflation rises

Inflation falls

Growthmovesabov

etrend

Growth

m

ovesbelow

trend

Overheat

StagflationReflation

Recovery

The Investment ClockThe InvestmentClock is an assetallocation tool

which can be usedto identify whichasset classes andequity sectorsshould perform

well as theeconomy movesthrough the fourphases of its

cycles.

We are in the

bond friendly

Reflation

phase


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Moderating growth & lower inflation favour bonds

GDP Growth (%)

4.45.8

3.8

8.57.5

9.4 9.6 9.0

6.8

5.5

0

2

4

6

8

10

12

01 02 03 04 05 06 07 08 09E 10E

-2

0

2

4

6

8

10

Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-080

2

4

6

8

10

12

14

IIP Growth (%) WPI Growth (%) - RHS

IIP Vs. Inflation

Source: Bloomberg, Citibank, E= Citibank estimate


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Attractive corporate bond spreads

3 yr G-Sec Vs 3-yr AAA

0

2

4

6

8

10

12

14


3 yr G-sec 3-yr AAA

Source: Bloomberg, as on 31 December 2008

5 yr G-Sec Vs 5 yr AAA

0

2

4

6

8

10

12

14


5 yr G-sec 5-yr AAA


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Equities

And have been volatile in the recent months

010203040506070

8090

Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08

India VIX Index

have fallen sharply

0

5000

10000

15000

20000

25000

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

20873

9647

-54%

BSE Sensex: 01 Jan 2001 to 31 Dec 2008

Dec-08

Source: Bloomberg, as on 31 December 2008


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But equities also tend to bounce back after such crisis

1992 stock market crash

Time to recover: 842 days

0

1000

2000

3000

4000

5000

22-Apr-92 12-Aug-94

-54.41%

2000 Tech Meltdown

0

1000

2000

3000

4000

5000

6000

7000

11-Feb-00 2-Jan-04

-56.18%

Time to recover: 1421 days

Source: ICRA MFIE. Past performance may or may not be sustained in the future


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To summarise

Moderating economic growth

Lower inflation

Wider corporate bond spreads

softening interest rate scenario

Equities have fallen sharply

Valuations looking attractive

Risk of missing recovery in equities

Bonds likely to outperform

Equities cannot be ignored

Need to have the right asset mix between bonds and equities


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Lets have a look at performance of

various asset allocation portfolios in

similar market situation in the past


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Performance of various asset allocations 2001 to 2008

600

1,100

1,600

2,100

2,600

3,100

3,600

4,100

4,600

5,100

5,600

Dec-00

Mar-01

Jun-01

Sep-01

Dec-01

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Equity Bonds 15% equity 30% equity 50% equity

Performance of equities and bonds is based on BSE Sensex and NSE G-Sec Composite Index respectively. Portfoliosreset to original allocation at monthly intervals.

Source: ICRA MFIE. Past performance may or may not be sustained in the future.

For illustrative purpose only.


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Choosing the right portfolio mix

Efficient Frontier - Two Asset Classes - 2001 to 2008

6%

7%

8%

9%

10%

11%

12%

13%

0% 4% 8% 12% 16% 20% 24% 28%Annualised Std deviation

CAGR

100% equity, 0% debt 95% equity, 5% debt 90% equity, 10% debt85% equity, 15% debt 80% equity, 20% debt 75% equity, 25% debt70% equity, 30% debt 65% equity, 35% debt 60% equity, 40% debt55% equity, 45% debt 50% equity, 50% debt 45% equity, 55% debt40% equity, 60% debt 35% equity, 65% debt 30% equity, 70% debt25% equity, 75% debt 20% equity, 80% debt 15% equity, 85% debt10% equity, 90% debt 5% equity, 95% debt 0% equity, 100% debt

Most efficient allocation

(Highest risk-adjusted return)

Return (CAGR)

Risk

Sharpe ratio

Equity Bonds 15%Equity 30% Equity 50% Equity

11.71%

26.39%

0.14

9.06%

6.83%

0.16

9.95%

7.42%

0.26

10.68%

9.74%

0.27

11.38%

14.03%

0.24

Performance of equities and bonds is based on BSE Sensex and NSE G-Sec Composite Index respectively. Portfolios reset to original allocation at

monthly intervals. Risk free rate used: 8%. Risk is represented by annualised standard deviation of monthly returns of the portfolios.

Source: ICRA MFIE. Past performance may or may not be sustained in the future.

For illustrative purpose only.


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In short

Bonds outperformed equities from 2001 to Mid 2003

Equities outperformed bonds from mid 2003 onwards

However, HYBRID PORTFOLIOS with 15-50% exposure to equities HAVE

DELIVERED THE BEST RISK-ADJUSTED RETURN over the period

analysed

Its difficult to make a timely shift from one asset class to another

The best strategy is to opt for an asset allocation which delivers

maximum return at desired risk level


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Introducing


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Product structure

An open ended fund-of-funds scheme

Provides a choice of three plans:

Plan A : around 15% of net assets in equity schemes, rest in debt schemes

Plan B : around 30% of net assets in equity schemes, rest in debt schemes

Plan C : around 50% of net assets in equity schemes, rest in debt schemes

Will predominantly invest in Fidelitys domestic funds


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Investment approach

Traditional stock-picking fund Bottom-up approach

Asset allocation funds Top-down approach

The two approaches complement each other

Asset allocation funds invest in stock-picking products

Source: FIL.


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Investment Process

ASSET ALLOCATION FUND SELECTION

Fund Manager

Plans with pre-set assetallocation Advice on plan selection:

To be provided by Advisers

Market Beta: Taken care ofby right mix of asset classes

Strategic & TacticalAllocation

Alpha generation: Stock-pickingby portfolio managers ofunderlying funds to generatealpha

Key inputs: Continuous PMinteractions over a long period

of time. A broad range of otherinputs, includingmacroeconomic factors, marketvaluation, chart analysis, riskadjusted returns, fund flows andinvestor sentiment

Source: FIL.


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Product Positioning

Suitable for relatively risk-averse investors looking to participate in equities to benefit

from potential recovery

Can help in capitalising on the existing opportunities in equities and bonds

Combines top-down and bottom-up approach Combination of alpha and beta

strategies

Combines best of Fidelitys funds in one fund

Varying styles of underlying funds gives diversification benefit including style

diversification

Investors can easily shift from one plan to another without any load


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Why invest in Fidelity Wealth Builder Fund?

Disciplined Asset Allocation

Asset allocation key driver of variability of investment returns

Portfolio diversification and downside protection

Low cost product

No entry load

Load free switches between plans

Benefit of lower expense ratios in the underlying funds

Simple, easy to understand product

Pre-set asset allocation

Advisers can help choose the right plan based on investors risk profile and return expectations

Equity exposure for an investor can be increased or decreased by load free switches between

plans


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Why invest in Fidelity Wealth Builder Fund? (contd.)

Portfolios invested in debt and equity products with track record

Economic cycle is in favour of bonds

Advantage of investing in quality bond portfolios

Positioned to benefit from a controlled exposure to equities as and when market recovers

Investment in equity portfolios that have gained ground in difficult times


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Key Fund Facts

Benchmark

Load structure

Minimum investment

Dividend Frequency

Systematic Plan

Plan A: 85% Crisil Composite Bond Fund Index & 15% BSE 200

Plan B: 70% Crisil Composite Bond Fund Index & 30% BSE 200

Plan C: 50% Crisil Composite Bond Fund Index & 50% BSE 200

Entry load NIL

Exit load 1% if redeemed within 12 months from the date of

allotment

Rs.5000

Plan A and Plan B: Quarterly, Plan C: At the discretion of theTrustees

Available now (Auto-debit facility at NFO)

Minimum amount of each instalment Rs 500

Minimum aggregate amount Rs 5000 Minimum 6 instalments

D t t b


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Dates to remember

New Fund Offer opens on:

New Fund Offer closes on:

Scheme re-opens for

continuous sale and

re-purchase:

January 14, 2009

February 5, 2009

March 2, 2009


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Performance track record Equity funds

FEF Bm FISSF Bm FIOF Bm FIGF Bm

-49.94 -56.36

NA

-42.81

NA

-39.98

-51.06

NA

-21.46

-45.80

NA

-22.76

1 year -50.24 -56.36 -52.02 -56.36

3 years 3.59 -0.84 NA NA

Since inception* 13.95 8.34 -4.38 -3.91

Equity Funds CAGR (%) as on 31-12-2008

As per SEBI standards for performance reporting, the since inception return is calculated on NAV of Rs. 10/- invested

at inception. For this purpose, the inception date is deemed to be the date of allotment, i.e. 16-May-05 for FEF, 22-

May-06 for FISSF, 28-May-07 for FIOF and 23-Oct-07 for FIGF. Past performance may or may not be sustained in the

future. Source: ICRA MFIE, Fidelity


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Thank You


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Documents

Fidelity Wealth Builder Fund NFO Presentation