7 Best Fidelity Mutual Funds for Retirement

Advertisement

Fidelity Investments operates some of the most popular mutual funds on the market. And the best Fidelity mutual funds and Fidelity index funds are, thankfully, very easy to access for most investors.

Fidelity mutual fundsBut while some of the best Fidelity investments are well-known, such as Fidelity Contrafund (FCNTX) with a massive $106 billion under management, many investors haven’t heard of the company’s other index funds and 401k investments.

That’s a shame, because the investment group is loaded with elite managers.

Competitors like Vanguard are focused on offering the lowest-cost index funds for your 401k and taking all the thinking out of the equation via passive management. However, Fidelity mutual funds do both — they do offer cheap, passive funds, but also frequently take an active approach to the market.

So what are the best Fidelity funds that are out there, and how are they doing lately?

Let’s take a look now at such Fidelity funds as Spartan 500 Index Fund (FUSEX), Fidelity Contrafund, Fidelity Select Health Care Fund (FSPHX) and more.

Best Fidelity Index Fund – Spartan 500 (FUSEX)

fidelity funds fusex
Click to Enlarge
Let’s start with Fidelity index funds, because many investors are surprised to learn that these mutual funds make up a large chunk of what Fidelity does.

It makes sense though, when you think about it: Fidelity Investments is one of the largest mutual fund firms on the planet, and the most popular flavor right now is index funds … so the company has moved with the market.

But Fidelity index funds aren’t just throwaway picks meant to capitalize on the popularity of passive management. In fact, Fidelity Index funds in the Spartan family are known for rock-bottom expenses that rival even low-cost king Vanguard.

Take the Fidelity Spartan 500 Index Fund (FUSEX), for example. It boasts costs of just 0.1% of investments — or a mere $10 annually on every $10,000 invested. That’s cheaper even than the Vanguard 500 Index Fund (VFINX), which charges $17 per $10,000 invested.

Both are super cheap, of course, and $7 isn’t a tremendous difference on that kind of cash invested. But considering both mutual funds are holding the exact same stocks — that is, the components of the S&P 500 index — why not pick the cheaper Fidelity index fund via Spartan 500 if everything else is equal?

Unsurprisingly, top components in this Fidelity index fund now are Apple (AAPL), Exxon Mobil (XOM) and Microsoft (MSFT) which are all market cap leaders in the S&P 500.

Also unsurprisingly, the Spartan 500 index fund was up almost 31% in 2013 just like the S&P 500 Index. It is up 4.8% year-to-date to slightly outperform the 4.5% return from its benchmark simply because of the mechanics of management, but don’t expect full-year performance to outperform the benchmark significantly.

Best Active Fidelity Mutual Fund – Contrafund (FCNTX)

fidelity funds fcntx
Click to Enlarge
Of course, when the stock market is trending benignly higher it’s safe to be in Fidelity index funds. But protecting your money is crucial in a choppy stock market, and that demands a good strategy and an agile manager.

Perhaps the best mix of growth and stability out there is Fidelity Contrafund (FCNTX). Manager William Danoff, who has been at the helm since 1990, is an old hand who truly knows the market. Under his watch, Fidelity Contrafund invests in companies whose value is unrecognized by the public, spanning both domestic and international companies as well as some lesser-known companies as small as $10 billion in market cap.

Foreign investments is just about 8% currently, so this is largely a domestic fund that isn’t exposed to emerging market volatility, though in past years Danoff has increased exposure to a more significant portion of Fidelity Contrafund.

Top holdings include Google (GOOG), Berkshire Hathaway (BRK.B) and Wells Fargo (WFC).

The fund is cheaper than many other actively managed large-cap funds because of its scale, with a 0.67% expense ratio that adds up to $67 on every $10,000 invested.

Contrafund actually lagged a bit in 2013 thanks to international exposure, up just 25% vs. the 31% for the S&P 500. And this year, it’s also trailing the market by a tad. However, that’s the nature of actively managed funds especially in a market where stocks simply trend slowly higher.

The important thing to remember is the longer-term track record of Fidelity Contafund. Over the last 10 years, FCNTX is up 105% vs. just 81% for the S&P 500 in the same period.

Best International Fidelity Mutual Fund – International Enhanced Index (FIENX)

081214-fidelity-funds-fienx
Click to Enlarge
For investors who want to get a little more aggressive and take on an international flavor, the Fidelity International Enhanced Index Fund (FIENX) is a great option.

It gives you the diversification and of a typical large-cap index fund like the Fidelity Contrafund option listed above. But this Fidelity fund has roughly 95% of its assets overseas.

That doesn’t mean big risks, however, since this fund focuses on international developed markets instead of emerging markets. The top holdings of this Fidelity mutual fund right now include megacap plays Roche (RHBBY) and Novartis (NVS) — two multinational healthcare stocks that just happen to be headquartered in Europe instead of the U.S. Other holdings include British energy giant BP (BP) and Swiss consumer giant Nestle (NSRGY).

Expenses are a little higher than some Fidelity index funds because this is “enhanced” — meaning the fund has the flexibility to use its analysts to deviate slightly from its benchmark of the MSCI EAFE index. The cost of the fund is $62 annually on every $10,000 invested.

This Fidelity mutual fund has lagged in 2014, up only 1% vs. about 4% for the S&P 500, and only 20% gains for FIENX in calendar 2013. This was thanks to the relative weakness of other markets like Europe and Japan compared with the U.S.

Best Fidelity Sector Fund – Select Health Care (FSPHX)

fidelity funds fsphx
Click to Enlarge
Investment options in a Fidelity 401k fund will not be very diverse, and you might not have many options beyond target-date funds, an index fund and an active fund like Fidelity Contrafund.

However, if you have sector funds in your portfolio, however, you may want to make a more focused play on one of the biggest growth areas right now: health care. The aging Baby Boomer population has created a demographic trend that’s impossible to ignore, and companies that make prescription drugs and medical devices are set to soar.

Furthermore, healthcare is recession-proof. Folks will spend money on treatment to stay healthy and live longer even when times are tough, forgoing vacations before they skip their cholesterol meds.

Fidelity Select Health Care Portfolio (FSPHX) is perfect to play this trend. Top holdings right now are generic drug company Actavis (ACT), medical device firm Covidien (COV) and diversified health technology company McKesson (MCK).

You’re obviously taking on a bigger risk if you bulk up on a specific sector, because your portfolio lives and dies on a specific industry instead of the broader economy and stock market. However, I remain convinced the megatrend in healthcare is a great focus for your retirement strategy.

This Fidelity mutual fund is reasonably priced at 0.77% in expenses, which adds up to $77 for each $10,000 invested. And most importantly, its returns more than make up for the difference with outperformance in 2014 of over 8% year-to-date and a whopping 42% gain in calendar 2013.

Best Fidelity Dividend Fund – Fidelity Equity Income (FEQIX)

fidelity funds feqix
Click to Enlarge
If you’re nearing retirement, clearly income should be on your mind as well as growth. After all ,the worst thing an investor can do besides not saving enough for retirement is saving what they think is enough but then watch their funds run dry as they spend things down in retirement.

Investments like dividend stocks provide a regular “paycheck” to retirement investors, and Fidelity mutual funds can do a great job of protecting your capital even as they provide enough income for you to live on.

For my money, the best income investment that Fidelity offers is the Fidelity Equity Income Fund (FEQIX). This Fidelity mutual fund focuses on buying equities — that is, stocks — that provide a good dividend. Right now its yield is 2.4%, meaning for every $100,000 invested you’ll get $2,400 in annual income.

That doesn’t sound like a lot, but that’s actually on par (or better) than many bond funds right now thanks to the low-interest rate environment created by the Federal Reserve.

Top holdings now are JPMorgan Chase (JPM) which has a dividend yield of 2.8%, Chevron (CVX) which has a 3.3% dividend, and Cisco (CSCO) which yields 3.0%.

This Fidelity fund has tracked the market year-to-date in 2014, with 4% returns, and underperformed slightly in 2013 with about 27% gains vs. 31% for the S&P 500 in the same period.

Best Fidelity Bond Fund – Fidelity Short Duration High Income Fund (FSAHX)

fidelity funds fsahx
Click to Enlarge
Thanks to the low interest rate environment, many bond funds offer paltry returns. That’s fine with some investors, however, because they want to preserve capital more than anything and bonds are much less risk than stocks,

But thanks to the possibility of an interest rate hike in the next year or two, many long-term bond funds could take a hit. That’s because when yields rise, the value of bonds can fall — particularly for investments with a longer duration.

I won’t bore you with the specifics of interest rate risk. But suffice to say, longer-term bond funds are at bigger risk. Even though short-term bond funds yield less income for retirement investors, they are less exposed to the loss in principle.

Thus, my favorite fund right now is the Fidelity Short Duration High Income Fund (FSAHX). The fund focuses on “junk” debt as well as some investment-grade debt, and right now its holdings have an average maturity of just 3.5 years.

Top holdings right now include bonds from French telecom Numericable and privately held industrial Schaeffler.

Again, returns don’t burn down the house in this low interest rate environment. But if you’re looking for preservation of capital in a lower-risk asset class like bonds, this is one of my favorite Fidelity mutual fund options now.

Best Low-Risk Fidelity Mutual Fund – Total Bond Fund (FTBFX)

fidelity funds ftbfx
Click to Enlarge
As stated above, I do not think now is the time to be overweight long-term bonds because of interest rate risk.

However, long-term investment grade bonds remain about the safest place you can put your money aside from a money market fund or CD right now, so many low-risk investors demand this asset class be accounted for in their portfolio.

If this is your mindset, than the best Fidelity mutual fund option for you is the Fidelity Total Bond Fund (FTBFX). The current yield is about 2.5%, giving a decent income stream of $2,500 annually for every $100,000 invested. Furthermore, the diversified bond fund is made up of U.S. government bonds, mortgage backed securities, corporate bonds and even emerging market debt.

It’s as diversified a basket of bonds as you can find out there, and with a decent yield and modest expenses of just $45 annually per each $10,000 invested.

In fact, this Fidelity Fund made the prestigious Kiplinger 25 for 2014 thanks to its strategy, performance and cost-effectiveness.

Putting the Pieces Together

FidelityLargeWhether you focus on aggressive growth in stocks or rely mainly on income investments in your 401k or IRA, Fidelity has some of the best options in the mutual fund industry. If you have an IRA, you can also get into these funds easily, with most accessible through a modest $2,500 buy-in instead of some huge hurdle that shuts out individual investors.

Even if some of the funds aren’t available to you, use this as a guide to building a strong, diversified retirement portfolio. The funds discussed here can be “replicated” through other providers, since most folks are limited to what their employer offers in their 401k

But whatever options you have, you should take note of this list and make a commitment to build a better portfolio in 2014. It’s your retirement after all, and it’s up to you to plan for it.

Here are some sample allocations to consider from these groups based on your risk tolerance.

Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in AA, but no other publicly traded stocks.


Article printed from InvestorPlace Media, https://investorplace.com/2014/08/7-best-fidelity-mutual-funds-retirement/.

©2024 InvestorPlace Media, LLC