Investment Product and Service Launches

Fidelity presents new model portfolios; LGIMA builds ESG strategy for DC plans; and Russell Investments announces tax-managed fund for long-term investors. 

Art by Jackson Epstein

Art by Jackson Epstein

Fidelity Presents New Model Portfolios

Fidelity Investments has launched new business cycle model portfolios and factor exchange-trade fund (ETF) model portfolios. These models broaden Fidelity Model Portfolios’ existing lineup with an expanded universe of investment opportunities.

The business cycle model portfolios incorporate a dynamic investment approach based on shifts in the business cycle, designed to enhance risk-adjusted returns. The factor ETF model portfolios are designed to help achieve specific outcomes in the U.S. equity allocation of a portfolio. They expand upon Fidelity’s existing offering, which includes models designed for core diversification as well as distribution income.

“Model portfolios allow advisers to tap into the investment management expertise of asset managers while also offering advisers the ability to customize solutions that help address their clients’ specific needs,” says Matt Goulet, senior vice president, Fidelity Institutional Asset Management. “These new model portfolios leveraged the feedback we heard from advisers who were looking to incorporate specific strategies to complement the allocations in their clients’ portfolios.”

The business cycle model portfolios are based on the framework of Fidelity’s Asset Allocation Research Team (AART), which conducts economic, fundamental and quantitative research to produce asset allocation recommendations for Fidelity’s portfolio managers and investment teams. These open architecture models can utilize Fidelity mutual funds and ETFs in addition to ETFs from other providers in the industry; they currently use BlackRock iShares ETFs. The offering includes:

  • Fidelity Multi-Asset Business Cycle Model Portfolio, designed to provide enhanced risk-adjusted returns by overweighting asset classes and sectors that tend to outperform during a given business cycle phase, while underweighting those that tend to underperform. This expands our lineup of core diversification model portfolios, which can help advisers create diversified portfolios aligned to a client’s level of risk.
  • Fidelity Sector Equity Business Cycle Model Portfolio, designed to provide enhanced risk-adjusted returns by overweighting sectors that tend to outperform during a given business cycle phase, while underweighting those that tend to underperform. This model, together with the new factor ETF models, represents a new suite of equity models from Fidelity.

The factor ETF model portfolios can be used to complement existing U.S. equity positions or as standalone U.S. equity positions within a diversified portfolio, according to Fidelity. They provide exposure to six Fidelity factor ETFs, and these ETFs and the models have been constructed by Fidelity’s quantitative research team. The offering includes:

  • Fidelity U.S. Equity Factor ETF Model Portfolio, designed to provide enhanced risk-adjusted returns for clients looking for capital appreciation.
  • Fidelity U.S. Equity Defensive Factor ETF Model Portfolio, designed to help reduce risk and lower volatility, which may help clients who are more sensitive to market downturns.
  • Fidelity U.S. Equity Income Factor ETF Model Portfolio, designed to provide income generation and maximize realized dividend yield, which may benefit clients in or approaching retirement.

Fidelity Model Portfolios are available to advisers at broker-dealers, registered investment advisers, banks and insurance companies. 

LGIMA Builds ESG Strategy for DC Plans

Legal & General Investment Management America (LGIMA) has launched the Legal & General Future World Developed Climate Change Strategy. Developed for U.S. clients who want to express a conviction on environmental, social and governance (ESG) themes depending on their different investment styles, this is the first in LGIMA’s Future World Strategy series.

The strategy is now accessible in the client’s U.S. defined contribution (DC) program as an investment option that specifically considers climate risk factors and related economic opportunities. 

Tracking a FTSE Russell Index, the strategy invests in a globally diversified portfolio of developed market equities. It uses an equity index to reduce exposure to companies with carbon emissions and fossil fuel assets that are higher than industry peers, and increases exposure to companies that generate revenue from green products. The strategy has been constructed to be a core, long-term equity holding opportunity for qualified retirement plans. 

“We are seeing increasing demand for straightforward investment strategies that efficiently balance risk and return while explicitly helping the world transition to a low carbon future,” says LGIMA CEO Aaron Meder. “The Future World Developed Climate Change Strategy meets this demand, at a low cost, with conventional index characteristics.”

Russell Investments Announces Tax-Managed Fund for Long-Term Investors

Global asset manager Russell Investments has launched the Russell Investment Company Tax-Managed Real Assets Fund for long-term investors who seek to diversify their portfolios with real assets and reduce the impact of taxes on their investment returns. Focusing on U.S. real estate, global infrastructure and global natural resources, the new fund aims to offer equity-like returns over a market cycle while mitigating downside risk relative to equities. The fund also implements tax-optimized strategies such as tax-loss harvesting, turnover management and yield reduction with a goal to manage the inherently higher tax implications in the real assets sector.

“Our research indicates real assets can offer attractive returns while exhibiting low correlations to global equities and acting as an effective diversifier within a broader portfolio context,” says Patrick Nikodem, portfolio manager at Russell Investments. “With the firm’s deep experience in both tax-aware investing and management of real asset portfolios, we expect our tax-managed real assets solution will help clients meet their desired investment outcomes.”

For investors concerned about potential weakness in the U.S. and global equity markets, Nikodem adds he believes real assets have the potential to offer some measure of downside protection in difficult environments while still capturing the majority of upside through a full market cycle. In addition, real assets may help to protect against the impact of rising inflation.

The new fund combines carefully selected third-party investment managers who specialize in the real assets sector. At launch, the line-up features the following allocation: Deutsche Asset Management manages an assignment for U.S. real estate investment trusts (REITs) exposure; Colonial First State Global Asset Management has a global listed infrastructure assignment; Grantham, Mayo, Van Otterloo & Co. has a global natural resources assignment; and Russell Investment Management, LLC manages tax-optimized and positioning strategies.

Regarding the implementation of tax-optimized strategies, Frank Pape, senior director, North America Portfolio Consulting Group at Russell Investments says, “While real assets play an important role in a multi-asset portfolio, taxes in this sector can present a drag if not addressed in tax-smart ways. Many miss the diversification real assets can provide. With our centralized trading and implementation capabilities, we maintain an overarching tax-managed view at the total portfolio level and implement steps to keep a close eye on after-tax outcomes.”

FTSE Russell Introduces Preliminary Report of Indexes’ Reconstitutions


FTSE Russell posted its official preliminary lists of companies set to enter or leave the U.S. broad-market Russell 3000 Index and the Russell Microcap Index following completion of the annual Russell U.S. Indexes Reconstitution. The rebalance will take place after U.S. equity markets close on Friday, June 28. The lists of 166 projected additions and 157 projected deletions for the Russell U.S. Indexes are now available on the FTSE Russell website.


For the first time since it took the top position in 2012, Apple, Inc. will not be the largest stock in the Russell U.S. Indexes. Apple lost 2.1% of its value in the last year to become the third largest U.S. stock in terms of total market capitalization. Microsoft gained nearly 30% market cap to become the largest U.S. stock in the Russell U.S. Indexes at this year’s Russell Reconstitution with a total market capitalization of $974.2 billion as of rank day on May 10, 2019. Rounding out the tech-heavy top five stocks in the newly rebalanced Russell U.S. Indexes are #2 Amazon at $930.5 billion, #3 Apple at $907.2 billion, #4 Alphabet at $808.3 billion and #5 Facebook at $537.6 billion. Visa at #9 with a $351.2 billion market cap in this year’s reconstitution, is the only new entrant to the top ten largest U.S. stocks, replacing Bank of America.


Uber, Lyft and Spotify headline a notable list of companies expected to directly enter the U.S. large-cap Russell 1000 Index at this year’s Russell Reconstitution. Uber and Lyft had recent high-profile IPOs and Spotify (a direct listing in 2018) is now eligible for inclusion as it meets the free float requirement. Beyond Meat and PagerDuty round out the list of four IPOs entering the Russell 1000 Index at this year’s Russell Reconstitution while 29 recent IPOs, mostly from the health care and financial services sectors, are expected to join the Russell 2000 Index.


The preliminary lists of additions and deletions are the first public step in the annual reconstitution process for the Russell U.S. Indexes. The first preliminary additions and deletions are published after market close on Friday, June 7, and updates to the lists will be posted to the FTSE Russell website after U.S. market close on June 14 and 21. If any changes to membership occur during the query period, daily technical notices will be published to the FTSE Russell website between these dates.