We have to face the fact that risk is part of our everyday lives — and part of our portfolios as well. Understanding risk and how individual portfolio components work together is a big part of crafting a mix of mutual funds that will stand the test of time.
With a total of $4.6 trillion in assets under administration, Fidelity funds provide numerous ways to slice and dice the risk equation. Fidelity funds also boast some of the brightest minds when it comes to successful active management — an increasingly important factor that helps set a few mutual funds apart from typically more efficient low-cost index ETFs.
Here are three no-load Fidelity funds that are open to new investors and offer investors quality choices in products that span the risk spectrum:
Fidelity Funds: Balanced (FBALX), Lower Risk
Click to Enlarge Fidelity Balanced (FBALX) looks to control risk with a classic 60/40 mix of stocks and bonds over time. Robert Stanksy leads a team of 10 managers here that all run a “sleeve” of this $25.5 billion fund.
The mix has been a winner over time, with the fund up an annualized 7.35% over the last 10 years. This performance lands FBALX in the top 9% of all mutual funds in the moderate allocation category.
The stock holdings within this Fidelity mutual fund fit into a large growth style, with nearly 19% of the portfolio in technology names like Apple (AAPL) and Google (GOOG). Financials like JPMorgan Chase (JPM) and Capital One Financial (COF) account for 17.5% of the fund. Between the large-cap bent and the built-in bond allocation, this fund is ideal for investors that have a desire to participate in the stock market … but in a lower-risk manner. Fidelity scores the beta on this fund at 0.67, indicating that it is estimated to be significantly less risky than the stock market as a whole.
FBALX charges 0.58% in expenses, or $58 annually for every $10,000 invested, and it requires a minimum initial investment of $2,500.
Fidelity Funds: Growth & Income (FGRIX), Average Risk
Click to Enlarge Fidelity Growth & Income (FGRIX) seeks to combine current income with capital appreciation in a package that makes this fund suitable as a core holding.
Manager Matt Fruhan has been in charge here since 2011, and the results have been solid. Over the past three years the fund has gained an annualized 15.5%, placing FGRIX in the top 12% of large blend mutual funds, according to Morningstar. This $7.4 billion fund is committed to holding stocks that have the potential to increase dividend payouts over time while investing for growth as well. This formula sounds easy enough, but in reality is a tough assignment to pull off. Fruhan is good at it, and he appears to be one of the brighter minds running Fidelity funds.
With a 30-day SEC yield of 1.7%, this fund does not provide a high level of income … but instead relies on the underlying strength of the portfolio to balance income with growth potential. Financial and technology names are the largest sectors, each accounting for 19% of the portfolio. Current top holdings include JPMorgan Chase, Apple, General Electric (GE), Microsoft (MSFT) and Chevron (CVX).
Fidelity Growth & Income has a beta of 1.03, indicating that it is estimated to be only slightly riskier than the overall stock market.
Expenses run 0.69% for FGRIX.
Fidelity Funds: Leveraged Company Stock (FLVCX), Higher Risk
Click to Enlarge Fidelity Leveraged Company Stock (FLVCX) is a fund that can be rewarding — or can inflict severe damage to an investor, depending on how it is used.
FLVCX seeks out firms that operate with high levels of debt that can turn that leverage into profits, and eventually reduce the debt burden as the company prospers. The strategy has worked well over time, with the fund up an annualized 10.3% over the past decade. This performance places it in the top 6% of all midcap blend mutual funds tracked by Morningstar.
However, there is a downside to this strategy — and a steep one at that. In down markets, the fund can get damaged in a severe way. In 2008, the fund lost more than 54% (worse than the broader market’s 41%) as the financial crisis took a huge toll on firms that carry a large debt load. For this reason, the fund is best suited for patient, risk-tolerant investors only.
Manager Tom Soviero has been on this assignment since 2003, and has compiled a fine track record over time. But many simply see the fine results earned here and reach for those numbers without understanding the risk involved in such a strategy. Beta swells to 1.38 on this $5.3 billion fund.
Recent top holdings include Lyondellbasell Industries (LYB), Comcast (CMCSA), Service Corporation International (SCI), General Motors (GM) and Ford (F).
Expenses for FLVCX run 0.82%.
As of this writing, Bill Wysor was long FLVCX and FBALX.