fidelity investments overview: nccmt cash and term portfolios july 2013 michael morin, cfa®...

Fidelity Investments Overview:NCCMT Cash and Term Portfolios

July 2013

Michael Morin, CFA®Director of Institutional Portfolio Management

Not FDIC insured. May lose value. No bank guarantee.

For Institutional Client Use Only

2

1. Investment Overview

2. Current Market Conditions

3. Regulatory Reform Overview

4. Portfolio Construction

5. Investment Strategy and Outlook

Agenda


Prioritization

Money Market Portfolio Management Objectives

3 For Institutional Client Use Only

1 Safety

2 Liquidity

3 Return

4

Multi-Dimensional ApproachBottom-up, fundamental investment platform complemented by top-down inputs, results in a robust and durable process

For illustrative purposes only.

Portfolio Positioning

Return Attribution

Scenario Expectation

s

Objective:

Consistent,Value-added

Results

BOTTOM UP FOUNDATION• Fundamental Analysis

– 100+ research professionals

– Fundamental foundation– Relative value assessment

• Quantitative Analysis– Proprietary risk modeling– Security and portfolio level

• Structured Analysis– Capital structure analysis– Complements fundamentals

• Value-Added Trading– Relative value assessment– Across curve and structure– Macro trends/technicals

TOP-DOWN PERSPECTIVES• Macroeconomic Inputs

– Federal Reserve expectations

– Sovereign landscape– Tail risk/scenario

modeling• Sector

– Basis call: transparency– Fundamental and relative

value• Yield Curve

– Breakeven analysis– Slope and volatility– Relative value

opportunities• Interest Rate

– Duration views– Volatility perspectives


Credit Research Team: Intensive Sector Coverage

1

Finance Team8 Analysts7 Associates

• U.S. banks

• European banks

• Asian banks

• Canadian banks

• Broker/dealers

• Asset managers

• Finance companies

• Life insurance

• Property & casualty insurance

• Financial guarantors

• GSEs/government agencies

• ABCP

Industrials Team10 Analysts8 Associates

• Airline/aerospace

• Automotive

• Railroads

• Manufacturing/tech

• Paper/chemicals

• Pharmaceuticals

• Metals/mining

• Energy/pipelines

• Utilities

• Media/entertainment

• Telecom/cable

• Food and beverage

• Tobacco

• Retail/supermarkets

• Consumer goods

• Healthcare

Municipal Team11 Analysts6 Associates

• Tax-Backed Analysis

• States

• Cities

• Counties

• School Districts

• Special Tax-Credits

• Higher Ed - Public

• Revenue

• Healthcare

• Industrial Dev.

• Resource Recovery

• Transportation

• Utilities

• Water & Sewer

• Tobacco

Macro/Structured8 Analysts4 Associates

• Sovereign debt analysis

• Macroeconomic analysis

• Central bank watch

Legal Team6 Attorneys2 Paralegals

• Structured Review

• Legal Protection

• Documentation

• Covenant Analysis

• Taxability Determination

3 52 4

* Includes Fidelity London staffSource: FMR as of 3/31/13

5

4 Managing Directors l 37 Credit Analysts* l 25 Associates*


Elements of Minimal Credit Risk Analysis

Liquidity Determination

Credit and Cash Flow Analysis

Management Review

Macroeconomic Analysis

LegalReview

In a short-term payment horizon, internal and alternative sources of liquidity are critical

Revenue streams, capital intensiveness, fiscal spending, debt load, interest rate sensitivity, quality of assets, and nature of liabilities

Accessibility to management, quality and sophistication of management team, financial statements, disclosure, compensation, and governance practices

Operating environment, industry dynamics, competitive positioning, economic climate

Legal analysis of structural features and covenants associated at issuer, program and security levels to ensure structure delivers intended exposure

Minimal Credit Risk Determination


Breakdown of the Fidelity Money Market Approved List

M-Score Approved Issuers

M1 25

M2 81

M3 125

M4 123

M5 28

Total: 382

Approved List is Diversified across Sector and Credit Quality

Main Categories Approved Issuers

Yankee Banks 40%

Repo Counterparties 17%

Industrials 11%

U.S. Banks 9%

Municipalities 7%

US Gov’t Agencies 5%

Utilities 5%

Asset Backed 3%

Other (2 categories under 2%) 3%

STRONGEST CREDIT QUALITY ISSUERS REPRESENT HIGHEST CREDIT CONCENTRATION AND LONGEST CREDIT EXPOSURE

M-Score Credit QualityMaximumMaturityLimit*

MaximumDollar Limit ($Millions)*

M1 Multiple offsets to buffer possible blows to financial strength 397 ~$25,000

M2 397

M3 397

M3 187

M4 187

M4 97

M5 67

M5 Fewer layers of credit/liquidity provided via Banks/Guarantors 30 ~$1,000

*Dollar and Maturity Guidelines are used for representative purposes and may not represent actual limitsSource: FMR as of 6/30/13


Current Market Conditions


9

Source: Federal Reserve as of 6/19/13

Fed Taper Talk Signals Unwind Process May Begin in 2014

Federal Reserve Board Rate Expectations

Appropriate Timing of Policy Firming Appropriate Pace of Policy Firming (June 2013)


2013 2014 2015 20160

2

4

6

8

10

12

14

1

4

13

11

3

14

1

Mar-2013 Jun-2013

Nu

mb

er o

f P

arti

cip

ants

Dec

-07

Mar

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

3,000,000.0

3,500,000.0

Agencies and Mortgages Treasuries

Unprecedented Fed Actions Drive Market Conditions

10

Stock prices

Bond yields

Mortgage rates

Trade weighted dollar

Collateral availability

Repo rates

($T

rillio

ns)

TwistQE1 QE1 Expanded QE2 QE3

FEDERAL RESERVE HOLDINGS OF TREASURIES AND AGENCIES


Source: Federal Reserve as of 6/19/13

Jun-09 Aug-09 Oct-09 Dec-09 Mar-10 May-10Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14

0.00

0.25

0.50

0.75

1.00

1.25

-2.5

0.0

2.5

5.0

7.5

10.0

Fed Funds Futures Levels (LHS) vs. Economic Indicators (RHS)

(%)

(%)

Futures 12/31/08

Core PCE Deflator

Unemployment Rate

Futures 12/31/11

Futures 6/30/13

Unemployment Rate Target*

Inflation Threshold*

Fed Shifts From Date-Based to Threshold-Based Guidance

11

Source: Bloomberg as of 6/30/13*Targets set during the 12/12/12 Fed meeting

Fed Shifts From Date-Based to Threshold-Based Guidance

Futures 12/31/12


12

Recent Move in Rates Did Not Directly Impact Money Markets

Source: Bloomberg, as of 6/30/13

0 2 5 10 300.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Treasury Rates

4/30/13 6/30/13

Years

Yie

ld (

%)

0 3 6 9 12 15 18 21 24

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

4/30/13 6/30/13

Months

Yie

ld (

%)


Dec-12 Jan-13 Mar-13 Apr-13 May-13 Jun-130.0

0.1

0.2

0.3

0.4

0.5Overnight Index Swap Rates

1 Yr OIS 1 Yr 1 Yr Forward OIS

Yie

ld (

%)

13

Recent Move in Rates Did Not Directly Impact Money Markets

Source: Bloomberg, as of 6/30/13

Following Bernanke’s May 22 Testimony


Tax Receipts Reduce Bill Supply – Repo Remains Subdued

Jan

'11

Feb

'11

Mar

'11

Apr

'11

May

'11

Jun

'11

Jul '

11

Aug

'11

Sep

t '1

1

Oct

'11

Nov

'11

Dec

'11

Jan

'12

Feb

'12

Mar

'12

Apr

'12

May

'12

Jun

'12

Jul '

12

Aug

'12

Sep

t '1

2

Oct

'12

Nov

'12

Dec

'12

Jan

'13

Feb

'13

Mar

'13

Apr

'13

May

'13

Jun

'130.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

1,300

1,350

1,400

1,450

1,500

1,550

1,600

1,650

1,700

1,750

1,800

Treasury Bill Supply vs. Short-Term Rates

6 Mth Bill Rate (Auction Stop) 1 Year Bill Rate (Auction Stop)

O/N TSY Repo Bills Outstanding (Billions) RHS

Bil

l R

ates

Bills O

utstan

din

g (B

illion

s)

14

Sources: FMR, Bloomberg, and Wrightson ICAP as of 5/31/13


3-MONTH LIBOR VS. 3-MONTH TREASURIES

15

Short-Term Credit Spreads Stabilize

Past performance is no guarantee of future results. It is not possible to invest directly in an index. Index performance is not meant to represent that of any Fidelity mutual fund.Source: Bloomberg as of 6/30/13

TED Spread Low:3/16/10: 11 bps

TED Spread High:10/10/08: 464 bps

TED Spread Current:6/30/13: 24 bps

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

0.0

1.0

2.0

3.0

4.0

5.0

3 Month LIBOR 3 Month Treasury

Yie

ld (

%)


Long-Term Spread Sectors Underperformed Relative to Short-End

16

Source: Barclays as of 6/30/13*TIPS return is calculated by taking the difference of the absolute returns from Barclays US Treasury Index and Barclays US TIPS Index

Agg

rega

te

CM

BS

AB

S

MB

S

Age

ncy

Cre

dit

TIP

S*

HY

Cor

pora

te

EM

D

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

(0.34)

0.50

(0.03)

(0.38) (0.56) (0.73)

(5.13)

0.14

(2.34)

Broad Sector Excess Returns

Q2 '13 Excess Return

%

Tec

hnol

ogy

Com

mun

icat

ions

Ene

rgy

Tra

nspo

rtat

ion

Cyc

lical

s

Bro

kera

ge

Cap

Goo

ds

Insu

ranc

e

Ele

ctric

Util

ity

Non

-Cyc

lical

s

Nat

Gas

Ban

king

RE

ITs

Fin

ance

Cos

.

Bas

ic

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

0.02

(0.06) (0.13)

(0.21) (0.31)

(0.40) (0.41) (0.42) (0.51)

(0.58) (0.63) (0.67) (0.74) (0.76)

(2.20)

Corporate Sector Excess Returns

Q2'13 Excess Return

%

17

Credit Concerns Remain in Eurozone

Source: Bloomberg as of 6/30/13Due to lack of availability, CDS was used in place of the 10 year bond yield for Cyprus.

10 YEAR BOND YIELDS OF SELECT EUROZONE COUNTRIES


Jun-

11

Jul-1

1

Aug-1

1

Sep-1

1

Oct-1

1

Nov-1

1

Dec-1

1

Jan-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-1

2

Sep-1

2

Oct-1

2

Nov-1

2

Dec-1

2

Jan-

13

Feb-1

3

Mar

-13

Apr-1

3

May

-13

Jun-

130

5

10

15

20

25

30

35

40

45

0

200

400

600

800

1000

1200

1400

1600

1800

Greece Portugal Ireland Spain

Italy France Germany Cyprus (RHS)

Yie

ld (

%)

5yr CD

S (b

ps)

Q1

2014

Au

gust

201

2

Source: iMoneyNet and Fidelity as of 6/30/13

2013Aug 22

Sept 27

$2,500

$2,600

$2,700

$2,800

$2,900

$3,000

Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13

($B

illio

ns)

Money Market Mutual Fund Industry Assets Under Management

SEC Chairman Shapiro does not have the votes to push through MMF reform

Geithner writes letter to FSOC encouraging additional MMF reform

FSOC proposes additional MMF reform

Nov 13


Nov 30

SEC MMF study released

SEC rule proposal issued

Dec 14

Schapiro steps down as SEC Chairman

FSOC proposal comment deadline(extended from Jan 18)

Apr

Jan 24 Feb / Mar

SEC comment deadline

Sep 2014

Final Rule AdoptedJun

Expect Walters and Paredes to be replaced

Obama names Mary Jo White as SEC Chairman

Feb 15 Mary Jo White confirmed as SEC Chairman

Money Market Fund Reform Key Events (2012-2014)

18

Overview of SEC Rule Proposal

Alternative 1:• Prime & municipal funds float unless such fund restricts each shareholder daily redemption to $1m• Treasury and Government funds exempt• Implementation period: 2 years

Alternative 2:• When weekly liquidity of all prime and municipal funds 15% or less

• 2% redemption fee unless board chooses lower or no fee• Board may gate redemptions for up to 30 days and may also lift gate

• Treasury & Government funds exempt – can voluntarily opt in• Implementation period: 1 year

Alternative 3:• Combination of both proposals


Portfolio Composition


Portfolio diversification is presented to illustrate examples of the securities that each fundhas bought and may not be representative of a fund’s current or future investments. Each fund’s investments may change at any time. Percentages may not add up to 100 due to rounding.Source: FMR as of 6/30/13

21

NCCMT Cash Portfolio

June 30, 2013 June 30, 2012


9%

16%

3%

13%

2%

14%

8%

28%

8%

North American Banks

Asian/Australian Banks

Eurozone

Nordic/Swiss Banks

UK Banks

Asset Backed CP

Other Corp/VRDN

Government/Repo

Finance Companies

8%

12%

14%

3%

21%

6%

30%

7%

Focus on High Quality Issuers

22

Foreign Bank Exposure Geographically Diversified

Source: FMR as of 6/30/13

FOREIGN BANK HOLDINGS: NCCMT CASH PORTFOLIO


Jun-

12

Jul-1

2

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb

-13

Mar

-13

Apr

-13

May

-13

Jun-

13

0

10

20

30

40

50

60

Germany

Norway

UK

France

Switzerland

Canada

Australia

Japan

Singapore

Sweden

% o

f F

un

ds

23

Fund Holdings Primarily Short-Term

Source: FMR as of 6/30/13

NCCMT CASH PORTFOLIO MATURITY SCHEDULE


Jul-1

3

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb

-14

Mar

-14

Apr

-14

May

-14

Jun-

14

1-2

Yea

rs

0

5

10

15

20

25

30

35

40

UK Banks

Eurozone

Other Corp/VRDN

Finance Companies


Nordic/Swiss Banks

Asset Backed CP


Government/Repo

% o

f N

et A

sset

s

Portfolio diversification is presented to illustrate examples of the securities that each fundhas bought and may not be representative of a fund’s current or future investments. Each fund’s investments may change at any time. Percentages may not add up to 100 due to rounding.Source: FMR as of 6/30/13

24

NCCMT Term Portfolio

June 30, 2013 June 30, 2012


9%

20%

24%

24%

12%

6%4%1%



Eurozone

Nordic/Swiss Banks

UK Banks

Asset Backed CP

Other Corp/VRDN

Government/Repo

Finance Companies

3%

16%

21%

24%

9%

14%

2%

7%2%

Focus on High Quality Issuers

3rd Quarter Investment Strategy and Outlook

Investment Strategy• Focus on highest quality issuers, maintaining high degree of liquidity• Maintain flexibility within portfolios amid potential market volatility stemming from Europe,

changes to Federal Reserve policy, the U.S. fiscal situation and additional bank rating downgrades

– Limit eurozone exposure to national champions in core countries– Limit issuer maturity tenors and credits to reflect fundamental, rating and macro risks – Maintain longer portfolio weighted average maturities (WAM) than peers

Outlook• Europe will remain a source of volatility

– Economic imbalances continue to provide sovereign financial stress, headline risk and volatility – Potential for additional ratings actions

• US outlook improved but will continue to be tested– Federal Reserve anticipated to taper bond purchases amid improving economic data – Congress resolved the fiscal cliff but will again approach the debt ceiling

• Central Banks around the world are expected to maintain interest rates at extraordinarily low levels to encourage economic growth

– Supply dynamics could keep rates lower in the months ahead • Final rules on additional regulatory reform expected in 2014


26

Important Information

Not FDIC insured. May lose value. No bank guarantee.

Not NCUA or NCUSIF insured. May lose value. No credit union guarantee.

Lipper Analytical Services, Inc., is a nationally recognized organization that ranks the performance of mutual funds.

The views expressed in this statement reflect those of the portfolio manager only through the end of the period of the report as stated on the cover and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.

Past performance is no guarantee of future results. Investment return will fluctuate, therefore you may have a gain or loss when you sell shares.

Diversification does not ensure a profit or guarantee against a loss.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Interest rate increases can cause the price of money market securities to decrease.

Before investing, have your client consider the funds’ investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Have your client read it carefully.

For Institutional Investor Use only.

Fidelity Investments & Pyramid Design is a registered service mark of FMR LLC.

Fidelity Investments Institutional Services Company, Inc.,100 Salem Street, Smithfield, RI 02917


620891.1.0

fidelity investments overview: nccmt cash and term portfolios july 2013 michael morin, cfa®...

Documents

nccmt cash

debt load

bank guarantee

credit analysts

quality of assets

fidelity london staffsource

valueadded resultsbottom

michael morin