Fidelity Investments' bet on commodities for its flagship retirement funds has declined 38 percent over the past five years, while top rivals have avoided the sector altogether or made money with more-conservative strategies.
The Boston-based company inserted its new Fidelity Series Commodity Strategy Fund into its Freedom Funds in 2009 to diversify their portfolios from stocks and bonds while giving them a weapon against inflation. But US inflation has been weak for years, while stocks have been surging.
Realized losses in the Commodity Strategy Fund have totalled $3.26 billion since 2012, according to its financial statements. In that time, energy prices collapsed, gold and silver prices declined, and bouts of excess supply plagued the coffee and sugar markets, according to Fidelity's disclosures. The fund invests in futures contracts that cover commodities such as hogs, oil and wheat, as well as swaps with counterparties such as Goldman Sachs Group Inc and JPMorgan Chase & Co, according to US regulatory filings.
Even with the commodity funds' losses, returns for Freedom Funds, which dial down risk as investors approach their estimated target date for retirement, exceeded those of more than 90 percent of peers because of larger, winning bets on stocks, according to three-year performance data from research firm Morningstar Inc.
Fidelity's allocation to commodities in the Freedom Funds is $4 billion, or nearly 2 percent of $224 billion in net assets. That is down from highs of $12 billion and up to 10 percent of assets in some of the most aggressive Freedom Fund portfolios in 2013. Morningstar analyst Jeff Holt said some managers of target-date retirement funds had lost patience with their commodities bets. "We're in a multiyear bull market for equities, and diversification from that doesn't look that great," Holt said.
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