Best Fidelity Funds for 2014 – Part 5: International Diversification (final part)

In the previous parts of the series we highlighted a handful of excellent Fidelity mutual funds that allow investors to build up core positions representing small cap stocks (see article), value investments (see article) and corporate bonds (see article), assuming that the current economic and market trends continue in 2014.

We also highlighted gold, as a potential contrarian investment (see article). While gold did not hold its recent support level and continues its downtrend, we expect that the gold mining sector will bottom in the first half of 2014 and may become an attractive investment again.

Today, let’s take a look at international investments, which can be used to diversify U.S. equity holdings in your portfolio. International equity markets have underperformed U.S. equities in 2013, but this may change in 2014. Currently Europe is the strongest with Nordic economies leading the way, but even a the weaker economies, such as Spain, Italy, Greece and Poland are expected to do well next year.

The weakest international investments in 2013 have been mutual funds investing in Latin America. The boom-bust market cycles are not unusual in that part of the world going back to the 1980, when these markets first became accessible to foreign investors. We regard funds focusing on Latin America as contrarian investment opportunities for 2014 with great potential to produce gains once the world economy starts growing again.

Thirdly, Asian investments have produced mixed results in 2014. Japanese equities were very strong in the first part of the year due to their weak yen policy, but rolled over and now in a broad trading range. Many investors and commentators cheered the recently introduced economic reforms in China. We are keeping a close eye on investing opportunities not only in China, but also in India and fast growing South Korea. Unique opportunities may also present themselves in the so-called “frontier” markets, such as Vietnam.

Fidelity has many excellent international mutual funds, but the one that stands out, as a great tool to diversify core holdings is the Fidelity Diversified International Fund (FDIVX). The chart below shows that its management team has been highly successful in identifying the right investments and generate an outstanding 22% return for shareholders so far in 2013.

fdivx

We all hope that 2014 will be as strong, as 2013 has been. In reality, financial markets seldom advance without any interruption.  Our previous study showed that U.S. equities are overbought by historic standards and now ripe for a correction (see article). That is why we suggest our readers to review the model portfolios at FidelitySignal.com, which provide buy and sell signals, and E-mail alerts for specific Fidelity mutual funds.

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