If you are looking to add a few investment ideas to your holiday shopping list, you may want to consider some of the best mutual funds positioned to take care of a so-called “Santa Claus rally.”
Corporate earnings are decent, consumers have jobs and money in their pockets, and an October rally is helping build positive momentum that could carry us through the end of 2015.
Money manager Erin Gibbs told Yahoo Finance that Q4 tends to be positive when stocks rally in October. “We found that on years where October is up over 5%, November and December end up being even higher than normal, with an average of 5.5%,” Gibbs says.
Add the typical year-end buying as managers throw some window dressing onto their holdings, and we could see a fourth quarter to remember.
Here, we’ll look at three of the best mutual funds that should be able to take advantage of fourth-quarter momentum and a Santa Claus rally:
Best Mutual Funds for a Santa Claus Rally: Fidelity Select Retailing Portfolio (FSRPX)
Expenses: 0.81%, or $81 annually per $10,000 invested
Minimum Investment: $2,500
One of the best mutual funds to tap into the pockets of consumers is Fidelity Select Retailing Portfolio (FSRPX).
Although the American consumer is saving more and spending less than economists predicted for 2015, consumer discretionary stocks still are beating the S&P 500. The average consumer discretionary stock fund is up 5.5% year-to-date, whereas the S&P 500 is up 4%. Now compare that to FSRPX, which is up a whopping 22% so far in 2015.
But that outperformance is not isolated to 2015. FSRPX sits in the top 1% of consumer discretionary funds for performance in the trailing one-, three-, five- and 10-year periods.
A narrative of holiday splurging is a very real possibility, and if so, FSRPX — with holdings such as Amazon (AMZN), TJX Companies (TJX) and L Brands (LB) — may be one of the best mutual funds to benefit as holiday shopping figures are released.
Best Mutual Funds for a Santa Claus Rally: Vanguard Health Care (VGHCX)
Expenses: 0.34%
Minimum Investment: $3,000
Healthcare is another sector that has strong prospects for the back end of 2015, and a solid choice to invest in those stocks is Vanguard Health Care (VGHCX).
The biotechnology subsector of healthcare took a beating in Q3, but it’s now bouncing off what appears to be an oversold price level. To wit, the SPDR S&P Biotech ETF (XBI) fell 26% in Q3, but the ETF finished up 7% for the month of October.
VGHCX also offers investors just what the doctor ordered in terms of a well-diversified mix of healthcare stocks — including UnitedHealth (UNH), Eli Lilly (LLY) and Medtronic (MDT) — which takes the edge off of concentrated biotech exposure while playing sector momentum and defensive qualities that investors are gravitating toward now.
Best Mutual Funds for a Santa Claus Rally: Fidelity Contrafund (FCNTX)
Expenses: 0.64%
Minimum Investment: $2,500
Investors looking for more diversification than what concentrated sector funds offer will be smart to take a look at Fidelity Contrafund (FCNTX) for the end of 2015 and beyond.
The legendary manager for FCNTX, Will Danoff, just passed the 25-year mark at the helm of Contrafund. Therefore, investors can feel confident placing their hard-earned dollars in his experienced hands.
Looking back on performance, Danoff’s Contrafund beats the average large growth fund in every time period published by Morningstar, capped by a top percentile rank for 15-year annualized returns.
But experience and past performance doesn’t always promise performance in the short-term, such as the last few months of 2015. What makes Contrafund look good for November and a Santa Claus rally in December is that growth stocks tend to outperform value in the late phase of the business cycle. Also, the year-to-date momentum — marked by 8.6% gain on FCNTX — could easily carry through the end of the year and beyond.
Top holdings for FCNTX include Facebook (FB), Berkshire Hathaway (BRK.A, BRK.B) and Apple (AAPL).
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.
