Record-high home equity in the U.S. represents a potentially significant driver of consumer spending and investment, according to Fidelity Portfolio Manager Katie Shaw, who believes this largely untapped source of funds, if accessed, could be big enough to meaningfully boost the U.S. economy.
“In September, the U.S. Federal Reserve made its long-anticipated pivot to cutting short-term interest rates, and if long-term rates follow suit, it may just be the catalyst needed to make home equity more attractively priced and accessible,” notes Shaw, who, alongside Avishek Hazrachoudhury, co-manages Fidelity Asset Manager® Funds (FASMX). “In turn, this treasure trove of dry powder could provide a source of economic growth that we haven’t seen for the last several years.”
The Asset Manager funds are all-in-one investment strategies that deliver broad, diversified multi-asset-class exposure aligned with client risk objectives, with the investment team seeking to add value through both asset allocation and security selection.
As co-lead managers, Shaw and Hazrachoudhury make asset allocation decisions and have the flexibility to make moderate tactical shifts around target mixes – including investing in “extended” asset classes – seeking to capitalize on changing market conditions, which recently have included a rise in home equity.
According to the February 2024 ICE Mortgage Monitor report, U.S. homeowners had $16 trillion in home equity at the end of 2023, the highest year-end total ever measured.
“That’s roughly $193,000 of home equity per homeowner, on average,” notes Shaw. “This is money that can be used for home repairs or remodeling, paying off high-interest debt, funding a small business, or other needs.”
Shaw formerly managed Fidelity’s Consumer Discretionary and Leisure strategies, and she believes her deep expertise around consumer markets and trends offers a unique perspective in how she manages the Asset Manager funds.
She goes on to highlight that inflation-adjusted wage growth – another powerful driver of consumer spending – is positive for all income levels, and unemployment remains low.
“To that point, I would stress that consumers were particularly hurt by rapidly rising interest rates and inflation in 2022, which continued into 2023,” says Shaw. “Consequently, if inflation remains low and rates continue to ease, it would further bolster the case for an uptick in consumer spending that likely would provide a lift to the economy.”
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Katie Shaw is a portfolio manager in the Global Asset Allocation (GAA) group at Fidelity Investments.
In this role, Ms. Shaw serves as co-manager for several multi-asset class mutual funds and subadvisory accounts, including the Fidelity and Fidelity Advisor Asset Manager Funds, and the Fidelity VIP Asset Manager and VIP FundsManager Portfolios.
Prior to assuming her current position, Ms. Shaw served as sector leader of the Global Consumer team and was responsible for providing research coverage for the consumer discretionary sector. Prior to that role, Ms. Shaw comanaged Fidelity Select Consumer Discretionary Portfolio, Fidelity Advisor Consumer Discretionary Fund, and Fidelity VIP Consumer Discretionary Portfolio and managed Fidelity Consumer Discretionary Central Fund.
Prior to joining Fidelity in 2007, Ms. Shaw served as a private equity associate at TA Associates and as an investment banking analyst at Salomon Smith Barney. She has been in the financial industry since 2000.
Ms. Shaw earned her bachelor of arts degree in economics and government from the University of Virginia and her master of business administration degree from Harvard Business School. She is also a CFA® charterholder.