Presentation on Fidelity Wealth Builder Fund

Fidelity Wealth Builder Fund FIDELITY INTERNATIONAL January 2009 Where are we ? FIDELITY INTERNATIONAL 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 2 * As on 31st December 2008 What’s going on in investor’s mind FIDELITY INTERNATIONAL Stock market has gone back to 2006 levels Economy is slowing down Interest rates coming down Where should I put my money ? Should I move out of equities? Do bonds make sense? How can I avail of the best investment opportunity? Current environment is likely to stir up many different thoughts and emotions in a random – perhaps chaotic – manner 3 FIDELITY INTERNATIONAL “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 Research Consultant with Fidelity Investments, USA. 4 What should investors be doing? FIDELITY INTERNATIONAL Markowitz and Modern Portfolio Theory 1952 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 Stick to basic principles of investing Harry Markowitz 5 Portfolio structuring FIDELITY INTERNATIONAL Why seek portfolio balance? Risk & Return The principle of diversification The six facets of a diversified portfolio Asset allocation Security specific risk Market cap bias Sector exposure Geographic location Investment style 6 FIDELITY INTERNATIONAL The case for asset allocation 7 Importance of asset allocation FIDELITY INTERNATIONAL 91.5% Impact on variability of return 8.5% Asset allocation Security selection Source: Brinson, Hood, and Beebower ‘Determinants of Portfolio Performance II – an update’ Financial Analysts Journal, May/June 1991 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 market timing 8 Asset classes may not move in the same direction FIDELITY INTERNATIONAL 2001 22.46% 8.98% 4.52% -17.87% 2002 15.68% 8.55% 6.45% 3.52% 2003 72.89% 29.43% 9.95% 5.45% 2004 13.08% 4.86% 4.64% -3.15% 2005 42.33% 17.19% 5.78% 3.47% 2006 46.70% 17.87% 6.14% 0.76% 2007 47.15% 20.10% 7.87% 5.29% 2008 20.78% 7.73% -7.98% -52.45% Equities Debt Cash Composite 8 year CAGR Equity: 11.71% Debt: 9.06% Cash: 6.62% Composite: 11.27% Effective portfolio diversification can be achieved through combination of asset classes 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 of every calendar year. 9 Source: ICRA MFIE Asset allocation can reduce downside risk FIDELITY INTERNATIONAL If equities go down by 10% 20% 30% Portfolio equity exposure 15% 5.30% 3.80% 2.30% 30% 2.60% -0.40% -3.40% 50% -1.00% -6.00% -11.00% For illustrative purpose only For portfolios invested in debt and equity. Assuming 8% return on debt component 10 FIDELITY INTERNATIONAL Asset allocation in current environment 11 Asset allocation and economic cycle FIDELITY INTERNATIONAL We are in the bond friendly Reflation phase 12 Growth moves above trend The Investment Clock is an asset allocation tool which can be used to identify which asset classes and equity sectors should perform well as the economy moves through the four phases of its cycles. The Investment Clock Inflation rises Recovery Growth moves below trend Overheat Reflation Inflation falls Stagflation Moderating growth & lower inflation favour bonds FIDELITY INTERNATIONAL 12 10 8 6 4 2 0 01 02 03 04 5.8 4.4 3.8 8.5 GDP Growth (%) 9.4 7.5 9.6 9.0 6.8 5.5 05 06 07 08 09E 10E 14 12 10 8 6 4 10 8 6 4 2 0 -2 13 IIP Vs. Inflation IIP Growth (%) WPI Growth (%) - RHS 2 0 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Source: Bloomberg, Citibank, E= Citibank estimate Attractive corporate bond spreads FIDELITY INTERNATIONAL 14 12 10 8 6 4 2 0 Jan-08 Feb-08 Mar-08 Apr-08 3 yr G-Sec Vs 3-yr AAA 3 yr G-sec 3-yr AAA May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 14 12 10 8 6 4 2 0 Jan-08 Feb-08 Mar-08 Apr-08 5 yr G-Sec Vs 5 yr AAA 5 yr G-sec 5-yr AAA May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 14 Source: Bloomberg, as on 31 December 2008 Equities… FIDELITY INTERNATIONAL …have fallen sharply 25000 20873 20000 15000 10000 5000 0 BSE Sensex: 01 Jan 2001 to 31 Dec 2008 -54% 9647 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Dec-08 And have been volatile in the recent months 90 80 70 60 50 40 30 20 10 0 India VIX Index 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 Source: Bloomberg, as on 31 December 2008 15 But equities also tend to bounce back after such crisis FIDELITY INTERNATIONAL 1992 stock market crash 2000 Tech Meltdown 5000 Time to recover: 842 days 4000 7000 6000 5000 Time to recover: 1421 days -54.41% -56.18% 3000 4000 2000 3000 2000 1000 1000 0 22-Apr-92 12-Aug-94 0 11-Feb-00 2-Jan-04 16 Source: ICRA MFIE. Past performance may or may not be sustained in the future And its difficult to identify the trough FIDELITY INTERNATIONAL 2008 credit crisis 25000 20000 - 59.51% 15000 10000 5000 Trough ? 0 08-Jan-08 Dec-08 Opportunity cost of staying out of equities could be high Source: ICRA MFIE. Past performance may or may not be sustained in the future 17 To summarise… FIDELITY INTERNATIONAL Moderating economic growth Lower inflation Wider corporate bond spreads softening interest rate scenario Bonds likely to outperform Equities have fallen sharply Valuations looking attractive Risk of missing recovery in equities Equities cannot be ignored Need to have the right asset mix between bonds and equities 18 FIDELITY INTERNATIONAL Let’s have a look at performance of various asset allocation portfolios in similar market situation in the past 19 Performance of various asset allocations – 2001 to 2008 FIDELITY INTERNATIONAL 5,600 5,100 4,600 4,100 3,600 3,100 2,600 2,100 1,600 1,100 Jun-03 Jun-04 Jun-05 Dec-03 Dec-04 Jun-06 Jun-08 Sep-03 Sep-04 Sep-05 Sep-06 Dec-06 Dec-07 Sep-02 Sep-01 Sep-07 Dec-00 Dec-01 Dec-02 Mar-03 Mar-01 Mar-02 Mar-07 Sep-08 Dec-05 Mar-08 Dec-08 Mar-05 Jun-01 Jun-02 Mar-04 Mar-06 Jun-07 600 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. Portfolios reset to original allocation at monthly intervals. 20 Source: ICRA MFIE. Past performance may or may not be sustained in the future. For illustrative purpose only. Choosing the right portfolio mix FIDELITY INTERNATIONAL Efficient Frontier - Two Asset Classes - 2001 to 2008 13% 12% 11% CAGR 10% 9% 8% 7% 6% 0% 4% 8% 100% equity, 0% debt 85% equity, 15% debt 70% equity, 30% debt 55% equity, 45% debt 40% equity, 60% debt 25% equity, 75% debt 10% equity, 90% debt 95% equity, 5% debt 80% equity, 20% debt 65% equity, 35% debt 50% equity, 50% debt 35% equity, 65% debt 20% equity, 80% debt 5% equity, 95% debt 20% 90% equity, 10% debt 75% equity, 25% debt 60% equity, 40% debt 45% equity, 55% debt 30% equity, 70% debt 15% equity, 85% debt 0% equity, 100% debt 24% 28% Most efficient allocation (Highest risk-adjusted return) 12% 16% Annualised Std deviation Equity Return (CAGR) Risk Sharpe ratio 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. 21 For illustrative purpose only. In short… FIDELITY INTERNATIONAL 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 22 FIDELITY INTERNATIONAL Introducing 23 Product structure FIDELITY INTERNATIONAL 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 Fidelity’s domestic funds 24 Investment approach FIDELITY INTERNATIONAL Traditional stock-picking fund Asset allocation funds Bottom-up approach Top-down approach Asset allocation funds invest in stock-picking products The two approaches complement each other Source: FIL. 25 Investment Process FIDELITY INTERNATIONAL Fund Manager ASSET ALLOCATION Plans with pre-set asset allocation Advice on plan selection: To be provided by Advisers Market Beta: Taken care of by right mix of asset classes – Strategic & Tactical Allocation FUND SELECTION Alpha generation: Stock-picking by portfolio managers of underlying funds to generate alpha Key inputs: Continuous PM interactions over a long period of time. A broad range of other inputs, including macroeconomic factors, market valuation, chart analysis, risk adjusted returns, fund flows and investor sentiment Source: FIL. 26 Product Positioning FIDELITY INTERNATIONAL 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 Fidelity’s 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 27 Why invest in Fidelity Wealth Builder Fund? FIDELITY INTERNATIONAL 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 28 Why invest in Fidelity Wealth Builder Fund? (contd.) FIDELITY INTERNATIONAL 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 29 Key Fund Facts FIDELITY INTERNATIONAL Plan A: 85% Crisil Composite Bond Fund Index & 15% BSE 200 Benchmark 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 Load structure Exit load 1% if redeemed within 12 months from the date of allotment Minimum investment Dividend Frequency Rs.5000 Plan A and Plan B: Quarterly, Plan C: At the discretion of the Trustees Available now (Auto-debit facility at NFO) Systematic Plan Minimum amount of each instalment Rs 500 Minimum aggregate amount Rs 5000 Minimum 6 instalments 30 Dates to remember FIDELITY INTERNATIONAL New Fund Offer opens on: January 14, 2009 New Fund Offer closes on: February 5, 2009 Scheme re-opens for continuous sale and re-purchase: March 2, 2009 31 Performance track record – Equity funds FIDELITY INTERNATIONAL Equity Funds – CAGR (%) as on 31-12-2008 FEF 1 year 3 years Since inception* -50.24 3.59 13.95 Bm -56.36 -0.84 8.34 FISSF -52.02 NA -4.38 Bm -56.36 NA -3.91 FIOF -45.80 NA -22.76 Bm -51.06 NA -21.46 FIGF -49.94 NA -39.98 Bm -56.36 NA -42.81 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, 22May-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 32 Performance track record – Fixed income funds FIDELITY INTERNATIONAL FCF - Retail FCF - IP FCF – Super IP Benchmark FLPF – Retail FLPF – IP FLPF – Super IP Benchmark (Retail & Super IP) Benchmark (IP) FSTIF - Retail FSTIF – IP Benchmark FFGF Benchmark 3 months 8.83 9.24 9.37 10.13 2.23 2.34 2.37 2.59 2.59 5.84 5.89 5.00 24.94 20.56 6 months 8.54 8.96 9.04 9.43 4.38 4.59 4.65 4.75 4.75 7.68 7.79 6.70 NA NA 1 year 8.20 8.63 8.70 8.41 8.41 NA 8.96 8.41 NA 10.79 11.01 9.50 NA NA Since inception 7.86 8.29 8.41 7.88 8.23 7.70 8.77 8.04 7.61 8.56 8.78 8.20 22.66 23.07 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. 27-Nov-06 for FCF, 20-Sep07 for FLPF-Retail and FLPF – Super IP, 18-Feb-08 for FLPF – IP, 30-Aug-06 for FSTIF and 07-Aug-08 for FFGF. For FCF, return for periods less than 1 year are simple annualised and for periods greater than or equal to 1 year is CAGR. For other funds, return for periods less than 1 year are absolute and those for more than or equal to 1 year are CAGR. Past performance may or may not be sustained in the future. Source: ICRA MFIE, Fidelity. As on 31-12-2008. 33 FIDELITY INTERNATIONAL Thank You 34 Important Information FIDELITY INTERNATIONAL Scheme Classification: An Open - ended fund of funds scheme comprising of three plans. Investment Objective: Plan A - To seek to generate reasonable returns by investing predominantly in the Debt Scheme(s) and around 15% of the net assets of the Plan in the Equity Scheme(s). Plan B - To seek to generate reasonable returns by investing predominantly in the Debt Scheme(s) and around 30% of the net assets of the Plan in the Equity Scheme(s). Plan C - To seek to generate reasonable returns by investing at least 50 % of the net assets of the Plan in the Debt Scheme(s) balanced with generation of long – term capital growth by investing around 50 % of the net assets of the Plan in the Equity Scheme(s). ▪ Normal Asset Allocation: Plan A - Debt Schemes – 70 to 100%; Equity Schemes – 0 to 30%; Money market instruments – 0 to 30%. Plan B - Debt Schemes – 55 to 85%; Equity Schemes – 15 to 45%; Money market instruments – 0 to 30%. Plan C - Debt Schemes – 30 to 70%; Equity Schemes – 30 to 70%; Money market instruments – 0 to 40%. Terms of issue: Units of Rs. 10 per unit for cash during the new fund offer and at applicable NAV thereafter. Minimum initial application amount: Rs. 5,000 per Plan per application. Minimum redemption amount/units: Rs. 1,000 or 100 Units in respect of each Plan. Scheme Information Document, Key Information Memorandum and Application Forms will be available at the ISCs/distributors’ offices. General Services: Investors can contact us at the toll-free number “1800-200-0600”. NAVs will be calculated on every business day and published in two daily newspapers on all business days. Redemption on all business days. ▪ Loads - Entry: Nil. Exit: For redemption within 12 months from the date of allotment or purchase applying First in First Out basis – 1.00%. A switch-out will also attract an Exit Load like any Redemption. No Entry / Exit Loads / CDSC will be chargeable in case of switches made between different options of the same Plan or between different Plans within the Scheme. Risk factors: ▪ Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the scheme or that the scheme’s objectives will be achieved. ▪ As with any investment in securities, the NAV of the units issued under the scheme can go up or down depending on various factors and forces affecting capital markets. ▪ Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the scheme. ▪ Fidelity Wealth Builder Fund is the name of the scheme, and this does not in any manner indicate the quality of the scheme, its future prospects or returns. ▪ Investing in the Scheme involves certain risks and considerations associated generally with making investments in the Underlying Schemes and the AMC’s investment decisions to choose the Underlying Schemes may not be always profitable. There can be no assurance that the Underlying Schemes’ will achieve their objectives. The Scheme’s performance will be affected by the performance Underlying Schemes in which the investments are made. Investors will be bearing the expenses of a Plan in addition to the expenses of the relevant Underlying Scheme in which the Plan will make investments. ▪ Please read the Scheme Information Document of the scheme carefully before investing. Statutory: Fidelity Mutual Fund (‘the Fund’) has been established as a trust under the Indian Trusts Act, 1882, by FIL Investment Advisors (liability restricted to Rs. 1 Lakh). FIL Trustee Company Private Limited, a company incorporated under the Companies Act, 1956, with a limited liability is the Trustee to the Fund. FIL Fund Management Private Limited, a company incorporated under the Companies Act, 1956, with a limited liability is the Investment Manager to the Fund. Fidelity, Fidelity International and Pyramid Logo are trademarks of FIL Limited. CI01101 35