Now is a great time for investors to consider their ideal asset allocation and rebalance portfolios accordingly.
Investment weights in portfolios will change over time, as some investments may perform better than others. As the weight of underperforming investments declines, those that perform well will gain more weight in a portfolio, causing the portfolio to deviate from its original asset allocation.
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That deviation cannot be overlooked because a portfolio’s risk profile changes alongside the shifting asset allocation. To return the portfolio to the desired risk profile, an investor may need to sell some of the successful investments and reallocate funds to the lower-performing investments. Buying and selling assets to restore the portfolio’s desired asset allocation is how an investor can rebalance a portfolio.
Many investors may think it sounds counterintuitive to sell outperforming investments; however, returning a portfolio to its desired asset allocation is an important way to manage risk.
Rebalance Sector Exposures First
Communication services, information technology, and financials are three sectors that might need rebalancing. These three sectors saw strong returns in 2024.
The Fidelity MSCI Communication Services ETF (FCOM ) returned 33.19% on a NAV basis in 2024, per Fidelity Investments data. The $1.3 billion fund provides exposure to the MSCI USA IMI Communication Services 25/50 Index. The top holdings as of December 31 included Meta (META), Google (GOOGL), and Google (GOOG).
Fidelity MSCI Information Technology ETF (FTEC ) returned 29.5% on a NAV basis in 2024, per Fidelity Investments data. The $13 billion ETF offers access to the MSCI USA IMI Information Technology Index. The top holdings as of December 31st included Apple (AAPL), Nvidia (NVDA), and Microsoft (MSFT).
Fidelity MSCI Financials ETF (FNCL ) returned 30.5% on a NAV basis in 2024, per Fidelity Investments data. The $2.1 billion ETF is based on the MSCI USA IMI Financials Index. The top three holdings in FNCL as of December 31st included JPMorgan (JPM), Berkshire Hathaway (BRK.B), and Visa (V).
For more news, information, and analysis, visit the ETF Investing Channel.
Fidelity Investments® is an independent company, unaffiliated with VettaFi. There is no form of legal partnership, agency affiliation, or similar relationship between VettaFi and Fidelity Investments, nor is such a relationship created or implied by the information herein. VettaFi LLC is the author and owner of these articles.
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