Fidelity: Rebuilding equity diversification: Four levers, one risk budget

Investors must now consider geoeconomic fragmentation, fiscal sustainability risks, the dominance of the AI theme, and the high concentration of market-cap weighted indices when making equity allocation decisions. Within this paper, we focus on four practical levers for implementation and set out a framework designed to link portfolio choices to macro themes while managing tracking error, costs and governance constraints:

1. Regional breadth reduces reliance on US mega-cap leadership and can improve the balance of equity return drivers.
2. Factor exposure offers a transparent route “off market cap”, diversifying return drivers across styles and risk premia, while allowing to keep sector exposures within tight ranges.
3. Active management complements regional and factor tilts by capturing tactical opportunities across stocks, sectors and regions as leadership rotates, alongside security selection.
4. Currency hedging is no longer a background decision, it can materially shape realised outcomes for non-USD investors.

In addition, we believe investors need to think more broadly about how to make their portfolios resilient in this environment, including adding less correlated exposures such as absolute return and gold, and active duration management for fixed income allocations.

The full white paper is available to view on the Macro Views page on our website.

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Authors: 

Salman Ahmed

Salman Ahmed joined Fidelity in August 2020 as Global Head of Macro and Strategic Asset Allocation. Previously, he was co-chair of Global Investment Committee and Chief Investment Strategist at Lombard Odier IM (LOIM). Before spending nearly 8 years with LOIM, Salman was head of Global Macro at Edf trading between 2009 and 2012. He also spent nearly 5 years with Goldman Sachs International as a global economist within the global macro team. He began his career in finance with Watson Wyatt (now Towers Willis Watson) in 2001. Salman holds a PhD and MPhil in Economics & Finance from University of Cambridge. He obtained his undergraduate degree from Lahore University of Management Sciences, Pakistan, in 1999.

Matthew Quaife

Matthew Quaife is Global Head of Multi Asset Investment Management and leads the Multi Asset investment team. In this role, he oversees the team-based investment process, working closely with Portfolio Managers to ensure strategies are managed in line with their long-term objectives. Matt plays an active role in facilitating collaboration across investment strategies and mentoring members of the investment team, as well as representing the team in Fidelity’s broader forums on governance and business strategy. Alongside his leadership responsibilities, Matt manages investment strategies with a focus on absolute return and Institutional Total Return, drawing on his extensive experience in asset allocation.

Stefan Rusev

Stefan is responsible for overseeing the Multi-Asset team's Strategic Asset Allocation framework, including quantitative tools used for investment strategy design. He specialises in cross-asset investment research, with a focus on medium to long-term portfolio design. Prior to joining Fidelity, Stefan worked with Insurance and Pensions clients on ALM and Balance sheet optimisation topics, covering asset allocation, capital modelling and derivatives overlay structuring.