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:
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.
The Fidelity Convertible Securities Fund (FCVSX) seeks a high level of total return by investing in convertible and preferred securities. The total return is achieved through a combination of income (the current yield is 2.16%) and capital appreciation.
The chart shows that FCVSX underperformed the broader market from February to mid May. Our expectation is that renewed interest in convertible securities will help FCVSX to resume its uptrend and that FCVSX will prove to be a solid investment in the coming months.
The question about the tapering of the Fed’s QE3 program dominated the markets today. The S&P 500 index managed a modest gain of 0.63% and closed at 1786.54.
As the broad U.S. equity averages continue to stay in bullish territory, one of the most important changes in market dynamics is the re-emergence of technology, as one of the market leading sectors. Fidelity has several tech funds that can help investors to take advantage of this new trend. Here we highlight three of them:
The Fidelity Select Electronics Fund (FSELX) was the best-performing Fidelity mutual fund today (source: www.fidelitysignal.com/market_indicators). FSELX top holdings include large cap technology companies, such as Intel, Broadcom, Qualcomm and Micron. FSELX reached a new 52-week high today and we would not be surprised to see it become one of the top funds in the next market cycle.
The other two tech funds we’d like to highlight are the Fidelity Select Software and Computer Fund (FSCSX) and the Fidelity Select IT Services Portfolio Fund (FBSOX). Both funds continue to show an almost uninterrupted bullish trend since the April market correction.
The Fidelity Contrafund (FCNTX) is a highly popular equity fund with a large-cap bias. Although large cap stocks did sell off Friday, the unproportionally large 6.69% drop in the net asset value (price) of FCNTX alarmed some investors.
The explanation for the large price drop is that Fidelity distributed both dividends and capital gains for a number of their funds with a pay date of Monday, December 16.
The most recent dividends and the capital gains distributions for Fidelity funds are available on the following website:
The sell-off for equities was broad based today, which is not surprising in light of the almost uninterrupted advance since the October correction.
One troubling sign, however, is that defensive sectors are impacted as much, or even more so, than the more aggressive growth sectors. For example, telecom and energy utilities are regarded as conservative investments, because they can provide dividend income and stable returns. The two charts below show that the corresponding Fidelity Telecommunications and the Utilities Funds rolled over and entered into a declining phase.
On Friday, several Fidelity funds experienced large drops of their net asset values (NAVs). For example, the Fidelity Magellan fund showed a 5.57% drop. Other examples include the Latin America Fund (down 17.79%), the China Region Fund (down 9.2%) and the Select Technology Fund (down 6%).
The explanation is that Friday was the ex. date for the distributions of many Fidelity funds. The pay date for the funds is on Monday, December 9. For investors who chose to reinvest the distributions automatically, the value of their holdings will be adjusted on Monday. For investors who chose not to reinvest, their investment account will be credited by the distribution amounts.
The December dividends and the capital gains distributions for Fidelity funds are available on the following website:
The biotech sector was one of the hardest hit in the stock market sell-off today. However, the one-year chart of the Fidelity Select Biotechnology Fund (FBIOX) shows that the bull market is still intact. The chart also shows that corrections are normal, but to confirm the bullish trend, we would like to see FBIOX making a new high again in the next few weeks.
The reason for the importance of the biotechnology trend is that this sector has led the bull market of 2013. FBIOX turned out to be an excellent way to invest in the biotech sector, just as in past bull markets (e.g. 1999 and 2003). And just as in the past, market leading sectors (and the corresponding Fidelity mutual funds) making higher highs and higher lows were required to propel the broad market indexes higher.
The Fidelity Real Estate Income Fund (FRIFX) is one of the best mutual funds available for investors who want to participate in the U.S. real estate market. Unfortunately, the continued rise of interest rates has weakened the sector (see previous blog post) and FRIFX is not longer an attractive investment, at least until the real estate sector turns around.
High-flying stock market sectors have received a lot of news media attention this year, since the top sectors have produced outsized returns. For example, the Fidelity Select Biotechnology Fund (FBIOX) has gained 62.54% so far in 2013.
Will this performance continue in 2014? History of the stock market tells us that it is unlikely. In fact, we have to go back to 1999 to see similar returns. And we all know what happened in the aftermath of the speculative stock market bubble in 2000.
Looking ahead to 2014 most economist draw a picture of continued economic growth in the U.S. The problem is that this can lead to an early decision by the Fed to taper the QE3 program, which will likely to have a cooling effect on equity markets.
As we consider the best investments for 2014, it is worth taking a closer look at value investing again. Value investing is a risk-averse approach for investors who would like to participate in the equity markets, but are worried about the potential of a large stock market correction in 2014.
Our favorite investment in this space is the Fidelity Value Fund (FDVLX). FDVLX has returned 36.85% since November 30, 2012, when FidelitySignal.com issued the buy signal. The chart below shows that FDVLX has been a solid investment in 2013 and the bullish trend continues to stay uninterrupted.
In a quiet market session today the Fidelity Select Multimedia Fund (FBMPX) stood out as one of the most exciting investments. FBMPX made a fresh high at the close and shows no signs of slowing down after a stellar 36.76% year-to-date return.
The top holdings for FBMPX include media and broadcasting companies, such as Disney. Time Warner, CBS, Comcast ad Viacom. While this year a lot of attention was focused on social media and green energy stocks, it turns out that smartly managed media companies providing content that consumers love have delivered better returns again.