6 Top Fidelity Funds for Your 401(k)

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As the economy continues to move slowly out of recession, investors may find it difficult to repeat the profits made in 2010 in even the best stock picks. But two decisions early this year can make it easier: maximizing your contribution to your company’s 401(k) plan, and investing in funds which have the lowest possible expense ratio, which puts more of your money to work.

With that in mind, here are six proven Fidelity funds which belong in your portfolio. As you’ll see below, they can then be combined into two types of risk-adjusted portfolios: Aggressive Growth and Growth & Income. Each portfolio has specific benefits for younger or older plan participants, and individuals who have different risk tolerances.

Fidelity Low-Priced Stock Fund (FLPSX)

Fund manager Joel Tillinghast has rarely owned fewer than 800 names in his portfolio, and often owns more than 1,000. At last count, the Fidelity Low-Priced Stock Fund had 907 holdings. Tillinghast buys stocks priced at $35 a share or less, which increases the likelihood of small- and mid-cap investments in bull markets, but in bear markets can net him companies of virtually any size.

His long-term track record has been one of solid, consistent performance, particularly when markets and economies find a bottom and begin to rebound. Average annual total returns over the last 10 years exceed 11%, almost double the performance of its Russell 2000 benchmark.  Tillinghast’s top holdings come from a variety of sectors, including health care, consumer services and technology. Among his top holdings are UnitedHealth (NYSE:UNH), Lincare Holdings (NASDAQ:LNCR), Oracle (NASDAQ:ORCL) and Safeway (NYSE:SWY).

Fidelity’s Focused Stock Fund (FTQGX)

Manager Stephen DuFour invests in a concentrated portfolio of 45 stocks, which are a blend of mainly large-cap growth and value stocks. His top 10 holdings and sector weightings reveal his focus on U.S. consumer and global consumer and recovery themes. As a result, he changed the portfolio mix in late 2010 to hold more large-cap growth stocks.  As a growth investor, DuFour seeks to find great companies trading at very good prices.  More specifically, DuFour said he looks for companies which have “unit growth, they have pricing power, they have expanding margins, and they have opportunities to expand their footprint over a number of years.”  Foreign investments make up 4% of the holdings. The top three sectors are information technology (32%), industrials (22%), and consumer discretionary (12%). The top 10 holdings are Union Pacific (NYSE:UNP), Cummins (NYSE:CMI), Apple (NASDAQ:AAPL), Edwards Lifesciences (NYSE:EW), Estee Lauder (NYSE:EL), Skyworks Solutions (NASDAQ:SWKS), SVB Financial (NASDAQ:SIBV), Perrigo (NASDAQ:PRGO), Berkshire Hathaway (NYSE:BRK), and eBay (NASDAQ:EBAY).

Fidelity Select Healthcare (FSPHX)

Investors are always cautioned that the trend is their friend and the current national move toward health reform presents many opportunities.  This is best exemplified by Fidelity Select Healthcare, which seeks to buy funds which appreciate in price.  As the national debate on healthcare attests, this sector remain attractive for its obvious demographic tale (aging population’s increased demands) and its stealthy, low-risk, long-term growth play in the consumer sector. In 2010, the fund posted a gain of 17% vs. 16% for the S&P 500.  This $1.81 billion fund led the entire Fidelity health category.

The specialized fund is managed by Edward Yoon and its top holdings include Medco Health (NYSE:MHS), Illumina (NASDAQ:LMIN), Covidien (NYSE:COV). Over the past decade, while the S&P 500 lost 7.3%, this fund gained 19.5%. Since taking over the fund in October 2008, Yoon has returned 5.8% vs. -5.1% for the S&P 500.

There’s a stealthy global market growth story here; emerging market demand for more and better healthcare is increasing while foreign stocks make up 9.7% of the holdings, but the companies that aren’t listed as foreign stocks derive increasingly greater amounts of revenue from the burgeoning global marketplace. While a few companies would be hurt by any changes in healthcare policy, the bottom line is that broader coverage provides access to bigger sales for many healthcare companies. Fidelity Select Health Care has a track record of being ahead of the sector trends, so it’s likely to focus on the opportunities and avoid the pitfalls in the months ahead.

Fidelity Contrafund (FCNTX)

This is one of Fidelity’s most recognized funds, which, since its inception in 1967, has seen huge inflows that have also made it a victim of its own success.  Due to its top performance, the fund was closed to new investors in April 2006, and then re-opened with the arrival of manager William Danoff.  In 2010, the $61 billion fund posted a one-year return of 16.27%, which is especially impressive considering its size.  Danoff is a highly regarded manager and considered a proven contrarian investor. This means he can spot opportunities, and moves into mid-cap stocks to complete the portfolio.  While his top holdings include households names, such as Berkshire Hathaway (NYSE:BRKA), Coca-Cola (NYSE:KO), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), McDonald’s (NYSE:MCD), he also holds non-U.S. value stocks.

Fidelity Global Balanced (FGBLX)

It you want exposure to equity and debt securities, this is the fund. It has 843 holdings from around the world, ranging from Japanese, Italian and German government bonds to U.S. companies like Estee Lauder (NYSE:EL) and ExxonMobil (NYSE:XOM).  By policy, 25% of the fund is invested in fixed income, but the fund is also in the large-cap growth category. This gives investors exposure to global debt and equity.  In a difficult environment in 2010, it posted a 10.4% return.

Fidelity Floating Rate High Income (FFRHX)

If you believe inflation will increase in 2011, this bond fund can provide some protection from rising rates. FFRHX invests primarily in senior U.S. bank loans which reset rates every three months.  This allows both the fund’s yield and price to rise if short-term rates also rise. The fund invests primarily in loans made to weaker companies, but manager Christine McConnell says her analysts examine loans to avoid ones that may fail. The average maturity of Floating Rates investments is less than five years and the fund yields 3.5%. Over the past three years, it returned 5.24% annualized.  The investment seeks a high level of current income. The fund normally invests at least 80% of assets in floating rate loans, which are often lower-quality debt securities, and other floating rate securities. The fund uses fundamental analysis of each issuer’s financial condition and industry position and market and economic conditions to select investments.

Fidelity Dividend Growth (FDGKX)

Dividend growth has become a very popular investment goal for investors looking for greater returns. For dividend seekers, this fund fits the bill.  It ranks in the low single digits in its class and manager Larry Rakers has successfully guided the fund by investing in companies that he believes will pay or increase dividend payouts. Foreign holdings make up about 15% of the holdings. The top three sectors are financials (18%), information technology (17%), and industrials (14%). The top 10 holdings are Apple (NASDAQ:AAPL), Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE: JPM), Bank of America (NYSE:BAC), General Electric (NYSE:GE), Cisco (NASDAQ:CSCO), Merck(NYSE:MRK), Hewlett-Packard (NYSE:HPQ), Lam Research (NASDAQ:LRCX), and Proctor & Gamble (NYSE:PG).

Making the Funds Work for You

Portfolio #1 – Aggressive Growth

This portfolio is well-suited to individuals who can tolerate more investment risk and portfolio volatility.  However, the portfolio provides good sector diversification, while the allocations in both funds are designed to cushion overall portfolio risk.

Ticker Fund Focus Allocation
FLPSX Low-Priced Stock Mid Value 25%
FTQGX Focused Stock Large Growth 20%
FSPHX Select Health Care Health 20%
FCNTX Contrafund Large Growth 15%
FGBLX Global Balanced Large Growth 10%
FFRHX Floating Rate High Income Bank Loan 10%
100%

Portfolio #2 – Growth & Income

This portfolio is better suited for investors nearing retirement, who want growth and income in a low-risk, broad-based portfolio. Its goal is capital appreciation and generating cash. This is considered an investment approach which is mid-way between aggressive growth funds and conservative income funds.

Ticker Fund Focus Allocation
FDGKX Dividend Growth Large Blend 25%
FLPSX Low-Priced Stock Mid Value 20%
FCNTX Contrafund Large Growth 15%
FGBLX Global Balanced Large Growth 15%
FFRHX Floating Rate High Income Bank Loan 15%
FTQGX Focused Stock Large Growth 10%
100%

Article printed from InvestorPlace Media, https://investorplace.com/2011/01/6-top-fidelity-funds-for-your-401k/.

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