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.
The Fidelity Magellan Fund (FMAGX) and several other Fidelity sector and international funds experienced large percentage drops of their Net Asset Value (NAV) at the end of the Friday trading session due to the distribution of capital gains. Investors will receive the distributions on the “pay date”, which is Monday, December 8. For more details click here.
Here are a few examples of Fidelity funds with large price drops:
During the last market correction in late July we observed that the Fidelity China Region Fund (FHKCX) held up the best during the sell off and may continue to do well in the fall. Indeed, FHKCX continued its bullish trend into September and now ranked the top-performing Fidelity international fund by FidelitySignal.com.
Yesterday, the sharp stock market sell off spooked many investors. Several equity sectors were down more than 2% and the selling was broad-based. The cause of the sell off was a combination of mixed signals about the U.S. economy and the increase of geopolitical risks in Argentina, the Ukraine and the Middle East.
While equities closed lower again today, the late afternoon rally increased the likelihood of the return of a more stable market next week. The Fidelity China Region Fund (FHKCX) held up the best during the sell off and may continue to do so should the equity sell of resume in September. The FHKCX chart shows that the strong bullish trend is still intact and the relative strength vs. the S&P 500 continued to increase during the sell off.
Treasury bonds often serve as safe haven in volatile markets. It is widely expected that interest rates will rise in the near future, which should cause the price of long-term Treasury bonds to fall, not to rise. Consequently, a continued bull market for Treasuries may serve as a cautionary signal for equity investors (see Spartan Long Term Treasury Bond Fund chart below). Also, we are approaching the seasonally weak September-November period when most of the market crashes occurred. Taken together, the market action should caution investors to steer away from high risk investments until conditions stabilize.
The Fidelity China Region Fund (FHKCX, last change: 1.08%) is currently the best Fidelity mutual fund, based on the fund ranking provided by FidelitySignal.com. The increasingly positive tone of the news in the last three months suggests that that the Chinese economy is in a better shape, than previously thought. As the result, the Chinese stock market has entered into a strong bull market.
The spike of the money market rates last week in China caused a near panic selling of equities. The selling continued today and as the result, the Fidelity China Region Fund (FHKCX, last change: -3.21%) was the weakest performing Fidelity international fund. The intensity of the selling and the extent of the drop make us believe, that an oversold rally should happen soon. Our hope is that this will stabilize the Chinese equity market and build a new base for future growth.