The Natural Resources Boom of 2021: The Best-Performing Fidelity Funds

With long-term interest rates rising rapidly and the potential for higher inflation, it is not surprising to see investments in natural resources, such as energy, outperforming the broad market by a wide margin (Chart 1). The declining strength of the U.S. dollar vs. other currencies is also an important contributing factor, since many of the commodities are priced in dollar terms.

Chart 1.

Out of the 40 Fidelity Select sector funds, Energy Services (FSESX) is the best performer (Chart 2).

Chart 2.

Large integrated oil companies are also benefiting from higher oil prices and renewed interest from investors (Chart 3).

Chart 3.

The 5-year chart of the Fidelity Select Natural Resources Fund (FNARX) shows that there is plenty of runway left before reaching the previous high in 2018 (Chart 4). This is in sharp contrast to most equity sector funds, which already surpassed their previous highs.

Chart 4.

In a previous article, I highlighted the Fidelity Global Commodity Stock Index Fund (FFGCX) as another excellent mutual fund that allows investing in the natural resources boom. FFGCX continues to make higher highs and higher lows while outperforming the S&P500 index (Chart 5).

Chart 5.

Click here to view the rankings of all Fidelity sector funds. The performance comparisons are updated daily utilizing the momentum screen at FidelitySectorReport.com.

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International Markets in Turmoil – Part 2

Summary:

• The German equity market is in a downtrend with negative impact for Europe
• The bear market in natural resources continues to pressure Latin American and Asian markets
• In our opinion, international markets will continue to decline and should be avoided in the near term

In our June blog post we warned about the rise of geopolitical risks and their impact on international markets. In the summer, one of the main concerns was the potential exit of Greece from the Euro Zone. While the exit did not happen, the continued weakness of the Greek equity market (GREK) shows that Greece is not yet in a better shape than before, and it is likely that the question will have to be addressed again in 2016.

Our current concern is the weakness of the German market, which is the largest and strongest economy of Europe. To illustrate the concern, lets take a look at two German bellwether stocks, Volkswagen (VLKAY) and Deutsche Bank (DB).

The chart below shows that the highly publicized “Dieselgate” emissions scandal has caused a more than 50% drop for the Volkswagen stock so far. With litigations just starting up and the recall for the diesel cars still not available, we see the weakness to continue for the near term. The chart of Deutsche Bank is also very bearish with a recent technical breakdown below the support level.

The chart of the German equity market shows a similar negative pattern:

Besides the weakness of the German market, Europe has two additional problems that will have to be resolved before we can turn bullish again. The first is the concern about the effectiveness of the quantitative easing program with the ECB starting to hint again at the need for a new round of money printing. The second concern is the economic impact of the flood of immigrants and the political tensions it created in the Euro Zone.

Our second topic is the impact of the bear market in natural resources, such as oil, on emerging markets that are net exporters of raw materials. The chart of the Fidelity Natural Resources Fund (FNARX) shows that the bear market resumed in late summer and downside volatility is very high:

It is not surprising to see that equity markets in Latin America and in Asia are also in a steep decline:

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International Markets in Turmoil

Geopolitical risks are on the rise again with weakness in European markets due to the intense negotiations around the potential exit of Greece from the European monetary union. The negative performance of the Greek stock market reflects the uncertainty about the outcome of the negotiations:

In addition to Greece, the sudden and dramatic selloff of Chinese stocks has the potential to destabilize international markets. A-shares, which are traded in Mainland China at the Shanghai and the Shenzhen Stock Exchanges, are impacted the most, while shares in Hong Kong are holding up relatively well:

As the result, most Fidelity mutual funds that invest in international markets are no longer trending higher. Examples include the Southeast Asia Fund (FSEAX), the Emerging Markets Fund (FEMKX) and the Diversified International Fund (FDIVX):

In our previous article we wrote about the potential of the natural resources sector to further rally and to provide market-leading results in 2015. Unfortunately the selloff in the Chinese market, which is a major consumer of commodities, caused an unexpected reversal. The chart of the Select Natural Resources Fund (FNARX) shows the sudden reversal of the emerging bullish trend:

Visit FidelitySignal.com for investment strategies involving Fidelity mutual funds.

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