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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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:

tyx

flbix

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.

fieux

fsesx

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:

fwrlx

View investment strategies at FidelitySignal.com

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