by Will Ashworth | May 15, 2014 5:56 am
The Wall Street Journal recently discussed David Einhorn’s pitched battle against Athenahealth (ATHN) in which some heavy hitters in the mutual funds business — Fidelity Funds included — are on opposite sides of this argument.
Einhorn believes ATHN stock is crazy overvalued and could fall as much as 80%. Meanwhile, Fidelity owns almost 12% of the company, including more than a million shares in its Fidelity Growth Company Fund (FDGRX).
Fidelity obviously is quick to disagree, then — but don’t just write it off as bias. Fidelity is a world-class mutual fund company, and its managers know what they’re doing.
Which is precisely why, regardless of your view of Athenahealth, you should give some Fidelity mutual funds a look if you’re looking to make some moves in your long-term portfolios.
Granted, you can’t jump into FDGRX — it’s closed to new investors — but there are so many Fidelity mutual funds with Morningstar’s five-star rating that it’s not hard to find a comfortable fit for everyone. Here are what I believe to be the five best Fidelity funds to own — and all of them meet Morningstar’s stringent criteria over a five-year period.
Click to Enlarge Fund type: International fund
Any diversified portfolio should have international exposure to stocks. The Fidelity International Growth Fund (FIGFX) has been around for more than six years and has $541 million in total net assets. Managed by Jed Weiss since inception, this particular Fidelity fund has achieved an annualized total return of 17.1% over the past five years through the end of April.
FIGFX charges 1.13% in fees, or $113 for every $10,000 invested, so it’s definitely not the cheapest Fidelity mutual fund. However, with 84% of the portfolio invested outside the U.S., you’re ensuring that the equity portion of your portfolio is geographically diverse.
In addition, there are 102 holdings with the top 10 representing just 28% of the portfolio, which protects investors against company risk as well. Most importantly, FIGFX only invests in large-cap stocks with market caps greater than $10 billion and for the most part located in developed markets. Thus, you get top holdings such as pharma giant Roche (RHHBY), consumer play Nestle (NSRGY) and brewer Anheuser-Busch InBev (BUD).
FIGFX is among the top Fidelity mutual funds to hold, especially if you’re a conservative investor looking to expand your horizons.
Click to Enlarge Fund type: Large-cap domestic fund
Not only is the Fidelity New Millennium Fund (FMILX) rated five stars by Morningstar over the past five years, but also has just been named one of Kiplinger’s top 25 no-load mutual funds for 2014.
It’s easy to see why so many like it. FMILX’s performance over the past five years is a dynamite 21.6% on an annualized basis, 244 and 397 basis points higher than the S&P 500 and its large-cap growth fund peers, respectively.
As Fidelity mutual funds go, this is one of the best.
The fund’s expense ratio of 0.91% is considered below average for its peer group. Meanwhile, FMILX turns the portfolio completely once every two years, which I consider slightly below average for large-cap mutual funds.
The $3.4 billion in total net assets is invested in 196 stocks, with the top 10 representing just 21% of the portfolio. The top five are split between banks and tech — Microsoft (MSFT), IBM (IBM), JPMorgan Chase (JPM), Wells Fargo (WFC) and Google (GOOG) have earned the fund’s heaviest weights.
Fidelity New Millennium is 22 years old; John Roth, who manages a number of Fidelity funds, has been running this particular fund since July 2006.
Recognition by the likes of Kiplinger is a sure sign he knows what he’s doing.
Click to Enlarge Fund type: Midcap domestic fund
Speaking of John Roth, he just so happens to also manage my next recommendation, the Fidelity Mid-Cap Stock Fund (FMCSX).
FMCSX’s performance in Roth’s first two years as manager didn’t keep up with the S&P MidCap 400, but since the beginning of 2013, FMCSX has been on fire.
Of course, Roth can’t take all the credit for Morningstar’s five stars — he wasn’t managing it for two of the five years — but I think you’ll find by the end of 2015 that his performance is more than satisfactory.
The expense ratio for this particular fund is 0.66%, lower than 80% of mutual funds in this category. Turnover is light at 15% with the top 10 holdings accounting for just 12% of the fund’s $6 billion in total net assets.
One of my favorite companies — Church & Dwight (CHD) — is included in the top 10. CHD might be a boring consumer products’ business (Arm & Hammer, OxiClean, etc.) but its performance over the past decade has been anything but ordinary, delivering just one year of negative returns.
Mid-caps are the sweet spot of investing, and Fidelity Funds has the right guy at the helm to help you tap them.
Click to Enlarge Fund type: Income fund
This next Fidelity fund is an oldie but a goodie.
Fidelity Capital & Income Fund (FAGIX) got its start all the way back in November 1977, and for the past 11 years, it has been managed by Mark Notkin, a 20-year veteran at Fidelity Funds.
Conservative investors should like the fact a seasoned pro is taking care of the $10.3 billion fund which invests in the bonds of companies rated below investment grade.
For those seeking income, FAGIX’s 30-day SEC yield is 3.76%, and the fund’s holdings carry a weighted average maturity of 5.7 years as well as a duration of 3.99 years.
FAGIX holds a total of 683 securities, with its top 10 holdings representing less than 10% of the overall portfolio. If you’re turning 46% of the portfolio each year, you definitely want someone experienced in buying and selling a large number of bonds every year. But it’s important to keep in mind that approximately 20% of the portfolio is invested in equities and convertible preferred stock. In other words, Notkin and his team have to be good at both stocks and bonds.
The performance of FAGIX over the long term indicates this is indeed the case.
Click to Enlarge Fund type: Income replacement fund
Fidelity Funds has an interesting product that helps pre-retirees and retirees cope with income requirements in retirement.
While a target-date fund seeks to build your retirement assets to retirement and beyond, Fidelity’s income replacement funds are designed to ensure you have enough income and assets to last through retirement.
Let’s assume you are 60 years of age, intend to work another five years and live until you’re 85. The Fidelity Income Replacement 2040 Fund (FIRWX) makes sense because that’s about when you expect to die. FIRWX is designed to gradually reduce your investment to zero while slowly increasing your monthly payments over time.
By investing in a combination of equity and fixed income funds that are rebalanced each year to reflect an increasing need for income as opposed to capital appreciation, you’re essentially buying a target date fund in reverse.
In many ways, FIRWX is like an annuity except that the monthly payouts aren’t guaranteed. Should the stock and/or bond markets reverse substantially as they did in 2008, you could have less to live on. For this reason, they’re especially appropriate for retirees with other income streams such as a pension, etc.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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