Emerging Investment Opportunities in International Markets

Quantitative Easing in Europe and in Japan has started to make a positive impact on equity prices in developing markets. In our view, one of the best ways to participate in this long-term trend is by investing in the Fidelity Diversified International Fund (FDIVX). FidelitySignal issued a BUY signal for the fund on February 8 and the fund was included in our Diversified Model Portfolio, as of that date.

The potentially stabilizing U.S. dollar and commodity prices, and the prospect of world-wide economic recovery in 2016 are making emerging market investments attractive again to investors seeking growth.

The Fidelity Southeast Asia Fund (FSEAX) provides a solid way to participate in the Chinese and other Southeast Asian markets. FidelitySignal issued a BUY signal for the fund on January 23 and the fund was included in our Aggressive Growth Model Portfolio, as of that date.

For investors seeking broad diversification across emerging markets including Southeast Asia, Eastern Europe and Latin America, the Fidelity Emerging Markets Fund (FEMKX) is our top rated choice. FidelitySignal issued a BUY signal for the fund on April 7 and the fund was included in our Megatrends Model Portfolio, as of that date.

Visit FidelitySignal.com for additional investment strategies.

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The Best Fidelity Mutual Funds for 2015

Summary:

• Economic conditions continue to favor real estate investments
• Municipal income and mortgage securities can provide an alternate source of income for bond investors
• Style rotation: value investing is likely to outperform growth stocks in 2015, just as small caps have the potential to outperform large caps
• Gold has not yet emerged as a good choice for diversification
• It is too early to invest in the energy sector or in international equities

The slowly improving U.S. economy and low interest rates have created a favorable environment for real estate investments. The Select Construction and Housing Fund (FSHOX) and the Real Estate Income Fund (FRIFX) are two excellent Fidelity funds, which allow investors to participate in this trend. The blue arrow in the top panel of the chart below shows that FSHOX has a positive relative strength compared to the S&P 500 index, because FSHOX has outperformed the S&P 500 index since August of 2014. Similarly, FRIFX has outperformed the benchmark Fidelity Spartan U.S. Bond Index Fund (FBIDX).

As the U.S. economy continues to improve, the Fed may start to increase interest rates in late 2015 or early 2016. In a rising interest rate environment bond investors may find it increasingly difficult to identify income funds that do not decline in value. As an example, the Fidelity High Income Fund (SPHIX) has already started to decline:

Two income funds that can outperform in 2015 are the Fidelity Spartan Municipal Income Fund (FHIGX) and the Fidelity Mortgage Securities Fund (FMSFX). The current yield of FHIGX is 3.54%, while FMSFX yields 2.49%.

Style rotation refers to the periodic over and under performance of different investment styles, such as growth vs. value, or large cap vs. small cap. For most of 2014 growth has outperformed value investing, and large caps have outperformed small caps. In 2015, we think that these relative trends can easily reverse. Two Fidelity funds, which can help investors to participate, are the Fidelity Value Fund (FDVLX) and the Fidelity Low-Priced Stock Fund (FLPSX):

Investing in gold mining stocks can provide an attractive opportunity for portfolio diversification. Of course, the best time to invest in the gold mining sector is when it is not declining. Unfortunately, that is not the case right now. However, should this trend reverse, the Fidelity Select Gold Fund (FSAGX) is an excellent mutual fund for investing in this sector.

The history of the stock market shows that the weakest investments in one year can often become the best performing investments a year or two later. However, looking at natural resources and international stocks, the two weakest investments areas in 2014, we think that they likely to continue to decline in early 2015, therefore it is too early to accumulate an investment position.

Read more about investment strategies involving these funds at FidelitySignal.com

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Emerging Markets in Downtrend

Weakening growth in international markets, the strengthening dollar and the prospect of higher interest rates in the U.S. negatively impacted emerging markets in September. The chart of the Fidelity Emerging Markets Fund (FEMKX) below shows that after a brief rally in August, the bullish trend sharply reversed and FEMKX is now in a bearish downtrend.

Fidelity has several funds that allow investors to make region-specific bets in emerging markets. The comparison of these regional funds show that the Latin America Fund (FLATX) and the Emerging Europe, Middle East and Africa Fund (FEMEX) are the weakest, while the Southeast Asia Fund (FSEAX) has held up better:

Buy and sell signals for Fidelity funds are available at FidelitySignal.com

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Two Investment Strategies that can Help you to Take Advantage of Declining Interest Rates

Already low interest rates have prompted many market observers to call for the decline of interest rate sensitive investments when the New Year started in January, but the opposite happened. Long-term treasury yields dropped and continue to decline:

As Treasury bond yields declined and the economy showed signs of improvement, investors have started to seek out high-yielding corporate bonds. The Fidelity Capital and Income Fund (FAGIX) is an excellent way to participate in this trend:

Emerging market economies are known to experience cycles of boom and bust. The boom periods can be highly rewarding for investors by producing double or sometimes even triple digit gains, while the bust periods tend to make risk averse investors exit these markets and seek out low-risk investments.

Declining interest rates, market friendly Fed policies, slow and steady economic growth, increased risk tolerance by investors and renewed appetite for investments with outsized returns have created a new bull market in emerging market equities in late spring. Our favorite fund in this space is the Fidelity Emerging Markets Fund (FEMKX), which have produced stellar returns since its inception in 1990.

Buy and sell signals for Fidelity funds are available at FidelitySignal.com

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New Trends: Top Two Mutual Funds for Investing in Emerging Markets

After three years of underperformance, emerging market investments are starting to outperform the U.S. equity market. Renewed interest in emerging markets is driven by multiple factors, such as rich valuations in some U.S. equity sectors, increased appetite for higher returns and pro-market government policies in several emerging market countries. For example, the recent elections in India resulted in a more than 20% rally.

Fidelity has several excellent emerging markets funds. For investors looking for a diversified investment in the space, the Fidelity Emerging Markets Fund (FEMKX) is a popular choice. The long-term chart shows that FEMKX has not provided steady returns for more than three years, but appears to be turning the corner:

For conservative investors the Fidelity New Markets Income Fund (FNMIX) offers an excellent choice to invest in the international bond market. FNMIX currently yields 4.62%.

The FNMIX chart shows that, in addition to the respectable income, significant capital appreciation can be achieved by investing in the FNMIX, as well. FNMIX has appreciated 4.65% since the April 1 buy signal that was issued by FidelitySignal.com. We think that both the fundamental and the technical factors are in place to support further gains.

 

Buy and sell signals for Fidelity funds are available at FidelitySignal.com

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Emerging Markets Underperform

The chart below shows the relationship between the Fidelity Emerging Markets Fund (FEMKX) and the Fidelity Spartan 500 Index Fund (FUSEX) by plotting the ratio of the two over the last two years. The declining line is an indication of the continuing underperformance of emerging markets compared to U.S. equities.

Taking a closer look at the chart of FEMKX helps us understand the underperformance. While U.S. equities are currently in a strong bull market, the FEMKX chart looks anything but bullish.

View buy and sell signals at FidelitySignal.com

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Is it Time to Buy the Fidelity Emerging Market Fund?

Emerging market investments have under-performed for most of 2013, but as money starts flowing into Chinese, Indian and Brazilian equities again, the Fidelity Emerging Markets Fund (FEMKX, last change: 1.7%) may be a good choice for investors who are looking to diversify. 

 

Buy/sell signals for Fidelity funds are available at FidelitySignal.com