Best Fidelity Fund of 2014: Fidelity Real Estate Fund (FRESX)

October 21, 2014

Oversold stock markets rallied around the world today due to multiple factors, including declining interest rates and reduced geopolitical threats. I’d continue to be very cautious with committing new funds to equity investments until we can see if the rally can sustain itself. With that said, it is worth noting the emerging new trends in the healthcare, retail and the real estate sectors.

As an example, the chart shows that the Fidelity Real Estate Investment Portfolio Fund (FRESX) is turning increasingly bullish. The blue arrow on the chart shows the buy signal that was issued for FRESX by FidelitySignal.com on February 11. FRESX is now the top-performing Fidelity fund of the year based on total return.

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View investment strategies and buy/sell signals at FidelitySignal.com

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Stock Market Correction: Own the Best Fidelity Funds to Avoid Volatility

October 15, 2014

Stock market volatility continued today, with the S&P 500 index and all other major U.S. equity indexes either approaching correction territory or already in it. The increase of the volume during the sell-off is disconcerting and may indicate deleveraging by large hedge funds and institutional investors.

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As the equity market correction has been unfolding, in previous articles I have highlighted the “falling knives”, the investment areas that prudent investors should avoid. The two weakest investment areas continue to be Euro stocks and energy/natural resources sectors.

Relentless selling has caused tremendous drops already. Consequently, I would not be surprised to see a violent relief rally taking place in these highly oversold markets in the near future.

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While equity markets experience their first serious disruption since the panic of the August 2011 credit-rating downgrade of the U.S. debt, it is worth taking a look at other financial markets, as well.

Most notably, and unexpectedly, interest rates of the long-term Treasury bonds continue to decline rapidly. Paradoxically, as the Federal Reserve has tapered off its bond-buying program, demand has increased for U.S. Treasury bonds, pushing the yield lower. However, this effect is exacerbated by increased reserve requirements for banks and, more recently, the “flight to quality” due to the equity market correction.

Nonetheless, since financial markets often forecast economic conditions 12 to 18 months into the future, the rapidly declining interest rate of long-term Treasuries is probably not a good sign and may signal that the bond market is anticipating economic contraction in 2015 and beyond.

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One of the confounding factors of market action has been the rapid rise of the dollar against all major currencies from August through October. Many commentators have attributed changes in the market to the strengthening of the dollar, however, since the beginning October, the dollar has pulled back and no longer appears to play a key role in determining stock market dynamics. A further weakening of the dollar from these levels could potentially help U.S. multinational companies to report improved earnings in early 2015.

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Commodities, as a group, have experienced a huge deflation since July. Energy and metals are the weakest, while some agricultural commodities are showing signs of bottoming out.

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Perhaps the only silver lining in the commodities space right now is silver, and of course gold, as these two metals are highly correlated. After a devastating decline staring in September 2011, gold bullion bottomed out in July 2013 and has been in a wide trading range ever since.

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I’d like to highlight here two conservative investments, which have worked well throughout 2014, regardless of market volatility. The first one is the Fidelity U.S. Bond Portfolio (FBIDX). FBIDX is a highly diversified bond fund that is appropriate for conservative investors.

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My top pick for the current market environment is the Fidelity Spartan Municipal Income Fund (FHIGX). Its low volatility and a tax-equivalent 3.55% yield continues to make FHIGX a very attractive investment choice.

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A word of caution for bond investors: unfortunately, not all bond funds have done well since the market correction started. High-yielding corporate bonds tend to track the stock market trends more closely than the interest rate trends, and are in a decline now.

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View investment strategies at FidelitySignal.com

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Stock Market Correction Causes Flight to Safe Investments

October 7, 2014

As the equity market correction unfolds, the current list of the top 10 Fidelity mutual funds shows a dramatic shift compared to what we have seen throughout the year: seven out of the top ten funds are now income funds.

 

Top 10

One of the most important new developments is that the yield of the 30-year Treasury bond continues in a downtrend causing long-term Treasury bonds to to resume a very strong uptrend:

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The weakest investments that I highlighted in previous blog articles, such as mutual funds investing in the Eurozone and energy, have continued to decline. However, they are so oversold now that it would not be surprising to see a relief rally.

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The market leaders of the last 12 months, including technology and communications sectors, are turning over now, which is a worrisome sign about the short-term prospects of the stock market:

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View investment strategies at FidelitySignal.com

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Small Cap Stocks are Hit the Hardest as the Market Correction Unfolds; Avoid the Falling Knives; Large Cap Stocks and Biotechs Can Lead the Market when the Next Rally Arrives

October 1, 2014

Today was a tough day for stock investors. A toxic brew of bad news caused another round of market sell off, but now the volume is increasing, which is definitely not a good sign. The Russell 2000 index, representing small cap stocks, was hit the hardest out of the major U.S. stock indexes. Small cap stocks typically outperform during the expansionary phase of the economic cycle. Consequently, the underperformance of the small cap index versus the large cap S&P 500 index is a worrisome sign.

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In spite of the best efforts by the ECB, increased concern about economic contraction in Europe has caused Eurozone markets to enter a downtrend in July. As the Wall Street adage says, “do not try to catch a falling knife”, we believe that investors are best served to continue to avoid Eurozone investments until the proverbial knife hits the floor. Currently, no floor is in sight.

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Crude oil and other commodities tend to be priced in dollar terms, so as the dollar rallied against all major currencies starting in July, stocks in the energy sector to sell off. The sell off is also exacerbated by concerns about a possible world-wide economic weakness. We will continue to watch the relative strength of the energy sector compared to the S&P 500 index to look for a turn-around that may be similar to what we have seen in February.

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On the bright side, the bull market is still intact for large cap stocks as investors seek out the safety of blue chip companies. As we reported earlier (see article), a rotation of capital is under way into large cap stocks.

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Biotechnology is another area of the stock market that is still holding up. While investing in the biotech sector is appropriate only for aggressive investors, tracking this sector can give us clues about the ability of the stock market to rebound from the correction.

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View investment strategies at FidelitySignal.com

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Sector Rotation: Brokerage and Chemical Sectors Show Improving Relative Strength

September 28, 2014

The list of the top 10 Fidelity funds (ranking provided by FidelitySignal) is currently dominated by mutual funds that invest in the health care and technology sectors, but large cap, retailing, brokerage and chemical funds have also made the list. I’d like to highlight here the Fidelity Select Brokerage (FSLBX) and the Fidelity Select Chemical (FSCHX) funds. Both FSLBX and FSCHX has positive relative strength compared to the S&P 500 index, which shows the potential of these sectors to outperform the market in the seasonally volatile fall period.

FidelitySignal_Research

 

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Rotation Continues into Large Cap U.S. Equities with the Exception of Energy Stocks

September 28, 2014

U.S. equities stabilized last Friday after the market sell off in the previous sessions. Increased volatility is not unusual in the fall season, as many of the infamous stock market crashes occurred in October.

The money rotation into large-cap blue chip stocks, which I highlighted in a recent article, has continued as investors are searching for the safety of large, stable companies in an uncertain market environment. As the result, Fidelity funds that invest in this space all show positive relative strength compared to the S&P 500 index. My top picks are the Blue Chip Growth Fund (FBGRX), the Magellan Fund (FMAGX) and the Contra Fund (FCNTX).

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Deflating oil and commodity prices in general has caused the stock price of large cap energy companies to decline, as shown on the chart of the Fidelity Energy Fund (FSENX) below. As commodity prices may eventually bottom in 2015, investments in the energy sector can become attractive again.

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View investment strategies at FidelitySignal.com

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European Markets in Downtrend

September 25, 2014

Both weakening economic conditions outside of the U.S. and geopolitical risks have caused the dollar to strengthen against all major currencies since May, including the Euro:

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The weak Euro coupled with renewed fears about recession in the Eurozone have negatively impacted European equities. Prudent investors may want to avoid investing in European equity markets until the downtrend reverses.

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View buy and sell signals at FidelitySignal.com

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