September 23, 2009 / 8:58 PM / in 8 years

Fidelity to raise foreign equity in retirement funds

* Fund giant cites greater safety of foreign stocks

BOSTON, Sept 23 (Reuters) - Fidelity Investments plans to increase the proportion of international equities in its target-date retirement funds, saying foreign stocks hold less risk now than in past years.

Fidelity said on Wednesday it also plans to add more holdings in commodities and inflation-protected bonds to its Freedom target-date funds, whose assets totaled about $90 billion at the end of August.

The changes by Fidelity, the Boston mutual fund giant, are the latest investment formula shift for a target-date fund family amid much scrutiny of their performance and the risks they pose for older investors.

On Tuesday, Putnam Investments, also in Boston, said it planned to add “absolute return” funds to the asset mix of its own target-date funds in a bid to reduce volatility.

Fidelity said it will aim for its Freedom Funds as a whole to hold 30 percent of their total equity exposure in international funds, up from 20 percent currently.

Its Freedom Fund designed for investors who plan to retire in 2020 will allocate 17 percent of assets to international equity funds versus 13 percent currently. The funds will diminish their holdings in domestic stocks at the same time.

Derek Young, a Fidelity investment officer, said the change reflects the growth in recent years of foreign stocks to more than half the total market capitalization of stocks worldwide.

He said in a statement that Fidelity has “seen diminished risks in long-term overseas investing due to improved foreign market maturity and information flow.”

Fidelity said the addition of more commodity and inflation-protected bond holdings would reduce risk through diversification. Commodities traditionally provide protection from inflation, for instance, Fidelity said.

Freedom Fund manager Jonathan Shelon told Reuters the changes were not meant to change the types of foreign stocks the funds now hold in a mix of developed and emerging markets.

He said Fidelity last changed the proportion of foreign stocks in the funds in 2006 when it lifted the percentage of foreign holdings to 20 percent from 15 percent. (Reporting by Ross Kerber, editing by Leslie Gevirtz)

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