A Standout Choice for Hands-Off Investors
The Fidelity Freedom Funds feature a strong team, a thoughtful approach, and an attractive collection of underlying strategies.
The following is our latest Fund Analyst Report for Fidelity Freedom 2030 (FFFEX). Morningstar Premium Members have access to full analyst reports such as this for more than 1,000 of the largest and best mutual funds. Not a Premium Member? Gain full access to our analyst reports and advanced tools immediately when you try Morningstar Premium free for 14 days.
The Fidelity Freedom Funds take a sound, research-driven approach, strengthened by the firm's deep asset-allocation team and outstanding lineup of underlying stock and bond funds. The series retains a Morningstar Analyst Rating of Silver for its two cheaper share classes, while its most expensive share class receives a Bronze.
Andrew Dierdorf and Brett Sumsion have comanaged this series for six years. The duo receives support from Fidelity's large and growing asset-allocation team, which currently includes nearly 50 investment professionals.
The target-date managers have made prudent, research-backed changes since a major overhaul to the glide path in 2013. The most recent change occurred in 2019, when the managers shifted the 70/30 U.S./non-U.S. equity split within its equity sleeve to a 60/40 allocation to better align the portfolio with their updated capital market views and improve diversification. In 2018, they proactively added strategic exposure to Treasury Inflation-Protected Securities and long-term U.S. Treasuries to address the risks of inflation and deflation.
In August 2014, the managers began tactically shifting the portfolios based on their one- to five-year views. The managers can deviate up to 10 percentage points from the strategic stock and bond targets. The results have been mixed thus far, typically swaying results by about 1 percentage point or less in any given year.
A look through to the underlying holdings reveals an impressive bunch of skilled active managers. Investors early in their career have sizable exposure to top-tier strategies run by Steve Wymer, Joel Tillinghast, and Will Danoff; the retail versions of these strategies receive Analyst Ratings of Silver. Meanwhile, investors nearing and in retirement can be confident in Fidelity's highly regarded bond-investing capabilities. Overall, every underlying fund's retail equivalent that receives an Analyst Rating is a Morningstar Medalist, accounting for about 60% of total series assets.
Process | Above Average
The managers implement a sound, research-driven approach to target-date investing that should help this series continually deliver in the future. However, minor reservations about the tactical allocation and portfolio construction approach lead to an Above Average Process rating, down from a prior rating of High.
Fidelity overhauled its approach amid lackluster results in 2013, increasing the equity stake in nearly all of the series' funds. The series now has higher equity exposure than peers until 10 years after the target date. The move was based on the firm's updated capital-market assumptions as well as insight into investor behavior from its record-keeping business.
Subsequent changes to the glide path have been subtle, yet prudent. In 2019, the managers updated the 70/30 U.S./non-U.S. equity split within its total equity exposure to a 60/40 allocation, improving diversification.
The managers implemented tactical allocation in August 2014, allowing the stock/bond split to deviate by 10 percentage points from their targets. The team has made meaningful sub-asset-class shifts with mixed results, adding 120 basis points in 2016 (its best year) and losing 60 basis points in 2018 (its worst year). Since late 2014, the team's moves have added modest value at this series but detracted value at similarly managed sibling Fidelity Advisor Freedom.
This series' managers have assembled an impressive lineup of underlying equity and fixed-income funds. Fidelity uses Series funds exclusively for the Freedom Funds. While Morningstar analysts do not rate the Series funds, nearly 60% of the series' assets are in funds with retail counterparts that earn a medals. For instance, Fidelity Series Overseas (FSOSX)--a new addition in 2019--has a retail counterpart named Fidelity Overseas (FOSFX) that is Silver-rated.
The series hasn't always tapped Fidelity's most proven strategies. Initially, the series held strategies with targeted exposure to an asset class, resulting in sector-neutral and quantitatively driven strategies playing larger roles than Fidelity's more-time-tested ones. In 2012, the managers changed course, inserting more-notable Fidelity strategies run by veterans such as Tillinghast. However, this welcome change was not consistently applied at similarly managed sibling series Fidelity Advisor Freedom, where Tillinghast and fellow veteran Wymer remain absent.
The series holds more underlying funds than many peers, with almost 30 unique holdings in each vintage. That's led to redundancies; for instance, the series holds three actively managed funds that consistently land in the large-cap growth Morningstar Category. That may water down the portfolio, but the strength of the managers alleviates concerns.
People | High
The combination of stable management, Fidelity's deep, well-resourced asset-allocation team, and an outstanding lineup of underlying funds, touting some of the firm's top managers across equity and fixed income, drives an upgrade of the series' People rating to High from Above Average.
Comanagers Andrew Dierdorf and Brett Sumsion have overseen this series for six years. Dierdorf joined Fidelity in 2004 and became a comanager here in 2011, replacing the departing Jonathan Shelon. Sumsion joined Dierdorf on the manager roster in January 2014, bringing more than a decade of asset-allocation and portfolio management experience. The duo receives support from the firm's expansive asset-allocation team composed of nearly 50 investment professionals, making it one of the largest in the industry.
Proven management skill is scattered throughout both the series' underlying equity and bond funds. Underlying Fidelity Series funds created exclusively for the target-date funds constitute all of the underlying holdings. While some may have limited records, they are typically managed in the same fashion as recognizable Fidelity funds. For instance, the veteran managers that run Fidelity Series Growth Company (FCGSX) and Fidelity Series Investment Grade Bond (FSIGX)--Wymer and Ford O'Neil, respectively--have strong records on retail Fidelity funds.
Parent | Above Average
Fidelity earns an Above Average Parent rating because of its ability to stay ahead of its competition.
The firm's successful stock-picking mutual funds fueled its rise to prominence, and it has adapted well to investor preferences that have shifted markedly over the past two decades. Index funds and exchange-traded funds have garnered most of the industry's flows as money has gushed from actively managed products--Fidelity's included. Yet overall, the asset-management division has continued to achieve positive organic growth by introducing or maintaining aggressive pricing on its own suite of passively managed funds and expanding its menu of client-demanded investment structures, such as managed accounts and collective investment trusts. These moves are made possible by the firm's strong distribution network, scale, established brand, and willingness to tolerate losses on some products in pursuit of broader strategic objectives.
Fidelity continues to invest heavily in its active managers' analytical and technological resources. It is home to a handful of the industry's most talented equity managers and boasts a topnotch fixed-income division. Across asset-class teams, elevated levels of turnover within its leadership ranks bear watching. Overall, though, the firm has served fundholders well through its competitive capabilities and costs.
Performance for the Fidelity Freedom series has improved since undergoing material changes. Management's decision to raise the equity exposure across the glide path in late 2013 has proved to be advantageous. Over the six-year period through December 2019 when stocks mostly climbed, the series' K6 share class on average beat more than 80% of target-date peers. The series' underlying funds also boosted results. On average, those funds ranked in the top half of their peer groups over the same period, and 10 of them generated top-quartile results.
The series' funds have also modestly surpassed the S&P Target Date indexes over the past six years. That's an impressive feat, as active managers have generally struggled to keep pace with their benchmarks as markets have soared.
The series' returns look worse over longer time periods. Prior to the late-2013 glide-path change, the funds' lower equity stake limited their participation in the general rise in stock prices coming out of the 2008 economic crisis. Plus, the series' hefty allocation to commodities hindered results. (Fidelity has since scaled back on that position.) The current glide path should put the series in a better position when stocks lead the way, but investors should expect more volatility. For instance, the funds lagged over 60% of peers, on average, in 2018's turbulence.
It's critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar Category's middle quintile. That's not great, but based on our assessment of the fund's People, Process, and Parent Pillars in the context of these fees, we think this share class will still be able to deliver positive alpha relative to the category benchmark index, explaining its Analyst Rating of Bronze.
Leo Acheson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.