Cornerstone Fund Strategy Performance - Using Fidelity Funds

Solid performance is something we're all looking for, and the information found on this page is aimed at helping you understand the strategy performance that can be expected. As always, we'll remind our readers that past performance is not a guarantee of future results, but on the flip side, we certainly believe that investing should be done with as much insight as possible - and past performance is one important area worth understanding.

The illustration below provides an overview of how the strategy performed for aggressive, moderate, and conservative investment portfolios. In this illustration, the starting investment is set to $1,000 - this could just as easily be $10,000, $50,000, etc. The important things to understand are really the performance as compared to the S&P 500, yearly returns, and the volatility associated with the portfolios. Several other important points are worth noting:

• The funds chosen for each portfolio (aggressive, moderate, and conservative) are the same. The only thing that changes is the allocation for each asset class, which is shown in the tables below.
• This is based on hypothetical back-testing. Our performance in real-time over the past 3 years essentially matches the performance shown below.
• Definitions for terms that may be unfamiliar can be found by either hovering over the term.

Figure 1. Strategy Performance with Fidelity Funds

As expected during this extended period of testing, the aggressive portfolio ends up with the largest returns, but also experiences the highest level of volatility. CAGR comes in just below 20%, but the aggressive portfolio does experience some sizable draw-downs. Of course, in relation to buying and holding a fund that tracks the S&P 500 (or purchasing an exchange traded fund like SPY), the performance of all three allocation models is strong. During the late 90's, the S&P 500 did very well, largely due to the extended bull market that large U.S. companies enjoyed. More detail about this can be found in our research paper and complete research manual that are available for download once you register and/or subscribe to our service.

The following table provides the percentages allocated to each asset class, and shows the performance of each asset class along with the portfolio. We like to show annualized returns in conjunction with volatility and maximum draw-downs that were experienced. By doing this, it's easy to remember that higher returns are usually associated with increased volatility. The final column, the sharpe ratio, takes both absolute performance and volatility into account. Higher Sharpe ratios are desirable, since it means higher returns and/or lower volatility.

Table 1. Aggressive Portfolio Performance Summary

As the allocation in bond funds goes up, annualized returns start to decrease, but volatility and draw-downs also decrease. If you've ever experienced large swings in your portfolios, you likely have a full appreciation for what it's like to lose money in a matter of just weeks or months. In the table below, you'll see that the CAGR, volatility, and other figures don't change for the individual asset classes or the S&P 500. The allocations change, which is of course what changes the moderate portfolio returns.

Table 2. Moderate Portfolio Performance Summary

For the conservative investor, we see that average annualized returns are still significantly higher than the S&P 500, while at the same time being much less volatile. For anyone that is wondering which bond funds are good for your portfolio, we hope this gets your attention!

Table 3. Conservative Portfolio Performance Summary

The final table shows how each of the portfolios performed on a year-by-year basis. One interesting observation is that the strategy can really help during both bull and bear markets. It's also interesting to see how the strategy was able to pick up on long-term trends in areas experiencing strong growth. For example, the strategy bought into technology funds during the technology craze, and experiencing incredible returns during 1999. It was then able to shift out of those sectors in 2001 and 2002 before too much damage had been done. In a more recent example, the strategy has favored energy-related sectors, which have performed very well over the past 1+ years.

Table 4. Year-By-Year Returns For Each Portfolio and the S&P 500

The performance information above displays information at the portfolio level, which is essentially a blend of our three primary asset classes (U.S. sector, International, and Bond funds). For more detail on how each asset class performed (graphs and yearly returns), please visit Performance->Fidelity Asset Class Details for more detail.

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