FIAM urges investors to review allocations for a high-debt decade

Fidelity Institutional Asset Management urged institutional investors to review strategic portfolio allocations before markets confirm a fiscal regime change. The Nov. 5 commentary by Kana Norimoto, Jacob Weinstein and Irina Tytell was published in Insurance AUM Journal. The authors wrote that fiscal policy may become one of the primary drivers of market outcomes over the next decade.

Periods of high debt have rarely resolved smoothly, they wrote, and often bring higher inflation, interest rate volatility and policy constraints that change how traditional assets behave.

For an insurer that holds duration partly as ballast against equity risk, the review would weigh how much of that offset it still assumes and how much room alternatives get in its place. The authors said fiscal policy may weaken stock-bond diversification and create a less reliable offset between stocks and bonds, and argued that real assets, alternatives and active management should carry a greater role. The commentary sets out no allocation weights or asset-level targets.

"The greatest risk may not be a sovereign debt crisis. It could be that investors remain positioned for a market regime that no longer exists," Norimoto, Weinstein and Tytell wrote.