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Fidelity Annuity For Those Investing for Income

In a previous article we summarized some of the major variable annuity products.

During our analysis, it became clear that the collection of funds that make up the subaccounts were well chosen and provide the foundation for a high performance portfolio.

This can be useful for those who already have a variable annuity and want to get the most out of it, or for those who are considering purchasing a variable annuity or for those who want to learn how to put together a good set of fund choices.

In this case we are going to examine Fidelity Personal Retirement Annuity

The Fidelity Personal Retirement Annuity's plan consists of 56 funds. These funds enable participants to gain exposure to 5 major assets: US Equity, Foreign Equity, REITs, Emerging Market Equity and Fixed Income.

Asset Class

Number of funds

US

13

International

5

Sector

12

Balanced

8

Fixed income

7

Emerging Markets

3

Real estate

1

Target Date

7


There are a selection of target date and balanced funds that can be selected but would not be part of an overall portfolio.

The plan rating for this annuity is above average at 85% and the breakdown is:

Diversification

96%

great

Fund Quality

65%

above average

Portfolio Building

90%

great

Overall Score

85%

above average



With five asset classes, diversification is going to be strong.

We will step through each of the asset classes to outline why the fund quality while good is not yet outstanding.

US Funds

LARGE BLEND

 FUSVX

 Fidelity Spartan U.S. Equity Index

LARGE GROWTH

 FCNTX

 Fidelity Contrafund

LARGE GROWTH

 FSGFX

 Strategic Advisers Growth

LARGE GROWTH

 FGIOX

 Fidelity Advisor Growth & Income

LARGE GROWTH

 FAGCX

 Fidelity Advisor Growth Opportunities

LARGE GROWTH

 EQPGX

 Fidelity Advisor Equity Growth

LARGE VALUE

 EQPIX

 Fidelity Advisor Equity Income

LARGE VALUE

 FVLIX

 Fidelity Advisor Value Leaders

MID-CAP BLEND

 FASOX

 Fidelity Advisor Value Strategies

Mid-Cap Growth

 FRVIX

 Fidelity Advisor Growth Strategies

Mid-Cap Growth

 FMCCX

 Fidelity Advisor Mid Cap

MID-CAP VALUE

 FVIFX

 Fidelity Advisor Value

SMALL BLEND

 FSCIX

 Fidelity Advisor Small Cap


The US funds provide access to large, mid and small cap funds. Large Cap funds are probably overweighted, especially on growth. Having more mid cap value and small cap value would improve the portfolio slightly. Nevertheless, this is a high scoring section. 

International Funds

Foreign Large Blend

 FAOIX

 Fidelity Advisor Overseas

Foreign Large Blend

 WPETX

 Credit Suisse Trust Intl Eq Flex

Foreign Large Blend

 INLDX

 Morgan Stanley International

Foreign Large Growth

 FCPIX

 Fidelity Advisor Intl Capital App

Foreign Large Value

 IVQDX

 Morgan Stanley Intl Value Equity

World Stock

 FGEBX

 Fidelity Advisor Global Cap Apprec 


This is a good international section. Large cap are overweighted, medium and small cap funds would be a good upgrade.

Emerging markets

Emerging Markets

 FIMKX

 Fidelity Advisor Emerging Markets

Emerging Markets

 LZEMX

 Lazard Emerging Markets Equity Instl

Emerging Markets

 MGEMX

Morgan Stanley Emerging Markets


Three alternative funds in this category is a good choice. It may be that having some large or mid-cap blend would provide a good alternative.

Real Estate

REAL ESTATE

 FHEIX

 Fidelity Advisor Real Estate


Real estate is under represented -- an international REIT would strengthen this asset class.

Fixed Income

Emerging Markets Bond

 MSIEX

 Morgan Stanley Emg Mkts Debt

High Yield Bond

 FHNIX

 Fidelity Advisor High Income I

Inflation-Protected Bond

 PRRIX

 PIMCO Real Return Instl

Intermediate-Term Bond

 FBNDX

 Fidelity Investment Grade Bond

Intermediate-Term Bond

 PTTRX

 PIMCO Total Return Instl

Cash

 CASH

 Money Market

Short-Term Bond

 PTLDX

 PIMCO Low Duration Instl


The fixed income class is well balanced with good choices and diversification.

Even without going into the balanced funds, there are enough funds here to build a solid portfolio. 

While the managed funds are available, the fee structure is such that the returns are going to leak into other people's pockets and it will pay you to be on top of your own investments -- either directly or through a professional.

The chart and table below show the historical performance of moderate model portfolios employing strategic and tactical asset allocation strategies (SAA and TAA, both provided by MyPlanIQ). For comparison purpose, we also include the moderate model portfolios of a typical 5 asset SIB (Simpler Is Better) plan. This SIB plan has the following candidate index funds and their ETFs equivalent:

US Equity: SPY or VTI
Foreign Equity:  EFA or VEU
REITs : IYR or VNQ or ICF
Emerging Market Equity :EEM or VWO
Fixed Income :AGG or BND

Performance chart (as of Nov 15, 2010)

Performance table (as of Nov 15, 2010)

There is an opportunity to build good returns and benefit from the tax free gains while mitigating the known high fees of this type of instrument.

There are certainly the funds in the plan to make this possible and overlaying a tactical asset allocation is empowered by the range and richness of the funds.
 








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