The Best Fidelity Mutual Funds for 2015


  • 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



Stock Market Correction Causes Flight to Safe Investments

As the equity market correction unfolds, the current list of the top 10 Fidelity mutual funds shows a dramatic shift compared to what we have seen throughout the year: seven out of the top ten funds are now income funds.


Top 10

One of the most important new developments is that the yield of the 30-year Treasury bond continues in a downtrend causing long-term Treasury bonds to to resume a very strong uptrend:



The weakest investments that I highlighted in previous blog articles, such as mutual funds investing in the Eurozone and energy, have continued to decline. However, they are so oversold now that it would not be surprising to see a relief rally.



The market leaders of the last 12 months, including technology and communications sectors, are turning over now, which is a worrisome sign about the short-term prospects of the stock market:


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Rotation Continues into Large Cap U.S. Equities with the Exception of Energy Stocks

U.S. equities stabilized last Friday after the market sell off in the previous sessions. Increased volatility is not unusual in the fall season, as many of the infamous stock market crashes occurred in October.

The money rotation into large-cap blue chip stocks, which I highlighted in a recent article, has continued as investors are searching for the safety of large, stable companies in an uncertain market environment. As the result, Fidelity funds that invest in this space all show positive relative strength compared to the S&P 500 index. My top picks are the Blue Chip Growth Fund (FBGRX), the Magellan Fund (FMAGX) and the Contra Fund (FCNTX).




Deflating oil and commodity prices in general has caused the stock price of large cap energy companies to decline, as shown on the chart of the Fidelity Energy Fund (FSENX) below. As commodity prices may eventually bottom in 2015, investments in the energy sector can become attractive again.


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The Fidelity Select Natural Resources, Natural Gas and Energy Funds are the Top Gainers Today

Seesaw market action today resulted in the Dow Jones Industrial Average briefly reaching an all-time high level before pulling back at the end of the trading session. Perhaps the most disappointing is the performance of companies in the social media and biotechnology sectors. These sectors led the bull market last year, but they no longer appear to be in in favor with investors.

While market volatility and sector rotation can be confusing on the short run, it is worthwhile to take a look at the long-term picture from time-to-time. The five-year charts below show three excellent Fidelity funds (FNARX, FSNGX and FSENX) that invest in the natural resources sector. This sector includes natural gas, oil and other energy sources, in addition to metals and materials stocks.

The charts show that the natural resources sector resumed its long-term uptrend last July, which coincided with an about 10% increase of crude oil prices. This positive trend is also supported by the American energy renaissance, which includes the development of unconventional and alternative energy resources.

While stocks of natural resources companies can be volatile, this sector continues to be an attractive choice for investors seeking diversification in 2014, because both the fundamental and the technical drivers are in place.





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

The large price drop of several Fidelity mutual funds may have alarmed investors today. But it turns out that there is no reason to panic. The drop in the net asset value (NAV) of these funds was due to the annual distribution of capital gains, and also to a smaller extent, dividends.

Looking on the bright side, large distributions are reflective of large gains in 2013. Indeed, 2013 has been an exceptionally strong year for equities. Unless we experience an unexpected sell-off in the last 11 days of the year, 2013 will become the best year in equities, since 1999. Of course, this makes many investors fearful of downside volatility in 2014. But for now, lets focus our attention on closing the year, especially if it involves mutual fund investments that have produced excellent gains for investors.

So, lets take a look at examples of Fidelity funds with large price drops that are due to capital gains distributions:






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