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).

fshox

frifx

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:

sphix

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%.

fhigx

fmsfx

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):

fdvlx

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.

fsagx

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.

fnarx

fsenx

fieux

femkx

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

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Large Price Drop of Multiple Fidelity Funds is due to Capital Gains Distribution

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:

ficdx

 

fhkcx

fmagx

fsptx

fwrlx

The Best Fidelity Funds to Invest in after the Fed Meeting

The Federal Reserve said in a statement today that it will wind down its bond purchasing program in October, but will continue to aim at keeping interest rates low for a considerable time. Initially, equity markets reacted positively to the news, but the rally faded by the close of the market session.

From the technical standpoint, the most interesting development was the Dow Jones Industrial Average hitting a new all-time high at 17,156, while the other major indexes were not able to follow through. Small cap stocks, which typically lead the market in the early phases of a growth cycle, are the weakest right now.

As money rotates into large-cap blue chip stocks, the Fidelity Large Cap Growth Enhanced Index Fund (FLGEX) may be one of the best ways to put fresh money to work in the current market environment:

flgex

 

Unlike what we have seen during previous market rallies earlier this year, not all sectors show positive momentum right now. Consequently, as we head into the seasonally weak October period, investors will have to be increasingly more selective. The technology and health care sectors show the strongest relative strength right now and barely corrected during the recent sell off. Here are two Fidelity funds that investors can consider using to overweight positions in these two large sectors:

 

fselx

fsphx

While the Fed’s intention is to keep interest rates low, the yield on the long-term Treasury bond has started rising already and broke its long-term trend today:

tyx

 

As the result, the bond market sold off and most Fidelity bond funds retreated, as well. Should interest rates continue to climb, bond fund investors will be faced with a difficult situation: the Net Asset Value (price) of their funds can decrease, while they will still be liable for paying taxes on the dividends distributed by the funds. This situation may force more selling of bond funds, which can create a negative feedback cycle for the bond market. The trend reversal for the following two widely held Fidelity bond funds show the potential danger bond investors will face in a rising interest rate environment:

fbidx

flbix

 

 

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

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Large Price Drop of Multiple Fidelity Funds is due to Capital Gains Distribution

Investors may have been alarmed by the large price drops of several Fidelity funds at the end of the Friday trading session. The drop in the net asset value (NAV) of these funds was largely due to the distribution of capital gains, which happens periodically. For more details click here.

Here are a few examples of Fidelity funds with large price drops:

fbgrx

flpsx

frifx

 

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

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The Best Fidelity Fund for Value Investors

Value investing is a time-tested strategy that involves identifying undervalued stocks with potential to grow. While many investors enjoy the research that is needed to find promising stocks, mutual funds are also available to make it easier to follow this strategy.

One of the best value funds available to individual investors is the Fidelity Value Fund (FDVLX). The low volatility market conditions have favored this investment approach since late 2012, and the management team at FDVLX continues to take full advantage of the stock picking opportunities in 2014.

fdvlx

 

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

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Top 10 Fidelity Mutual Funds

The salient feature of the bullish uptrend of the U.S. equity market this summer is low volatility. Most sectors are up since the last correction in February. The benchmark Fidelity Spartan 500 Index Fund (FUSEX) has returned 6.56% in the last three months.

As energy prices have slowly increased since January, it is not surprising to see Fidelity funds investing in the natural resources sector dominating the list of the top 10 Fidelity funds (ranking is provided by FidelitySignal):

Top10

One of our favorite investments in this sector is the Fidelity Natural Resources Fund (FNARX). FNARX has provided an excellent 35.48% gain since the buy signal was issued on April 22, 2013. The top panel of the chart below shows that the relative strength of FNARX compared to the S&P 500 index has been increasing, which continues to make this mutual fund an attractive investment:

 

fnarx

 

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:

femkx

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.

fnmix

 

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

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