A technical screen of Fidelity mutual funds shows that new investment areas emerged in 2015 to lead the market
The natural resources sector, which includes energy, has the potential to provide market-beating returns. On the other hand, investors shouldn’t expect low volatility, because commodity prices can fluctuate in a wide range
International markets, most notably Asia and Europe, may outperform U.S. equities this year
From time-to-time, it is important to take a broad view of the market, so we can better understand the changing conditions and dynamics. Five month ago, back in November 2014, our momentum screen showed that the top 10 Fidelity mutual funds were all equity funds representing the consumer, health care and transportation sectors of the U.S. economy (see article).
While equity funds continue to outperform bond funds, the picture is very different now. Mutual funds investing in energy and other natural resources, and international markets are the market leaders. At the same time, select U.S. sectors, such as utilities, are lagging:
Speculation about bottoming oil and commodity prices have caused an impressive rally in the natural resources sector. A great way to participate in the potentially long-term bullish trend in this sector is via the Fidelity Select Natural Resources Fund (FNARX).
The Fidelity China Region fund (FHKCX) is now the best year-to-date performer of all Fidelity mutual funds with a 20.97% gain.
Several Fidelity funds experienced large drops of their net asset values (NAVs) on Friday. The explanation is that Friday was the ex-dividend date for many Fidelity funds. The pay date for the funds is Monday, April 13. For investors who chose to reinvest the distributions automatically, the value of their holdings will be adjusted on Monday. For investors who chose not to reinvest, their investment account will be credited by the distribution amounts.
The full list of funds receiving dividends and capital gains distributions is available here:
Increased volatility in the materials sector resulted in a sell signal for the Fidelity Select Materials Fund (FSDPX) and the fund was removed from the portfolio:
The other portfolio components, such as the Fidelity Southeast Asia Fund (FSEAX), the Fidelity Construction and Housing Fund (FSHOX), the Fidelity Select Medical Delivery Fund (FSMEX) and the Fidelity Select Consumer Staples Fund (FSDAX) have contributed to the strong performance of the strategy in 2015:
The technology sector, led by Apple, semiconductor and large cap Internet companies, has become one of the leading equity sectors in 2015
Rising interest rates resulted in a trend reversal for the utility sector
The strengthening dollar and declining energy prices cause the natural resources sector to resume its decline
The Nasdaq index (where many of the market-leading technology companies are listed) closed above the historically important 5,000 level yesterday. This level has not been seen since the dot com bubble of 2000. This time around, we think that the bull market in the technology sector is sustainable and stock prices will go higher from here.
One of the best ways to participate in this trend for Fidelity mutual fund investors is by building a position in the Select Technology fund (FSPTX). The top portion of the chart below shows that the relative strength of FSPTX compared to the S&P 500 has turned positive in 2015, which is a very bullish sign:
Steadily rising long-term Treasury rates caused a sharp sell off in the interest rate sensitive utilities sector. The chart of the Fidelity Select Utilities Fund (FSUTX) shows that the sector is not participating in the stock market rally and has broken its long-term uptrend:
In a previous article we warned that it is too early to invest in the natural resources sector. In spite of the rally in January, this sector continues to be in a downtrend and we think that there are many better investment opportunities in this market.
Global equity markets are “climbing a wall of worry”, in spite of uncertainty about the potential exit by Greece from the Eurozone and geopolitical events in the Ukraine, in the Middle-East and in Latin America.
Quantitative easing by the European Central Bank and the Bank of Japan can lead to inflation of financial assets in 2015
Low interest rates and much reduced energy costs have started to fuel a new boom in consumer spending in the U. S.
The best growth strategy this year may be to diversify between market-leading sectors and emerging investment areas (source: FidelitySignal.com)
Broad market indexes, such as the S&P 500, the Dow Industrial Average and the Nasdaq, are making higher highs again after a treacherously volatile two-month period starting in early December. The good news is that investors have not shied away from risk-on investments, which is very bullish.
The FidelitySignal Aggressive Growth model portfolio can provide an example of how an aggressive asset allocation strategy can work in the current market environment. The asset allocation mix of the portfolio consists of five Fidelity mutual funds. The funds represent investments in both leading sectors and emerging investment areas:
The chart of the Fidelity Spartan U.S. Equity Index Fund (FUSEX) shows that U.S. equities broke out from a volatile trading range that started in early December of last year. At the same time, the yield of Treasury bonds reversed course, which caused the Spartan Long-Term Treasury Bond Fund (FLBIX) to correct:
Mutual funds investing in the leading sectors have continued to advance this year, but may be ripe for a pullback now to their respective moving averages (blue lines on the charts):
As the equity market has turned more bullish again, sector rotation has intensified, as well. This is good news for investors, since new investment opportunities are emerging. One example is the Fidelity Select Materials Fund (FSDPX):