A central theme for 2016 is likely to be diversification. However, spreading risk among several mutual funds doesn’t have to mean that you will water down your returns — investors can be tactical in their portfolio management and potentially juice performance with the right selections.
There are dozens of Fidelity mutual funds that have potential for performing well in 2016, and many of these funds can make outstanding long-term holdings.
The best funds for 2016 will likely include a few top actively managed funds, some well-chosen sector funds and possibly a low-cost index fund.
Investors who want to hit all of these areas are wise to take a look at our list of best Fidelity funds for 2016.
Best Fidelity Funds for 2016: Fidelity Spartan 500 Index Fund (FUSEX)
Expenses: 0.09%, or $9 for every $10,000 invested
Minimum Initial Investment: $2,500
Whether you are building a diversified portfolio from the ground up in 2016 or you want one of the cheapest index funds on the market, you’ll want to start with Fidelity Spartan 500 Index (FUSEX).
Some of the best actively managed funds could be top performers over the next year, but passive management and rock-bottom expenses are top qualities of mutual funds in any market environment.
We start our list with FUSEX because it makes for an outstanding core holding in a diversified portfolio, and large-cap stocks — including core holdings such as Apple (AAPL), Microsoft (MSFT) and General Electric (GE) — are quality choices for 2016.
Best Fidelity Funds for 2016: Fidelity OTC Portfolio (FOCPX)
Expenses: 0.83%
Minimum Initial Investment: $2,500
Investors looking for an aggressive core holding or a fund that can do well when corporate earnings are growing will want to take a close look at Fidelity OTC Portfolio (FOCPX).
Although 2016 may turn out to be a negative year for stocks, there is no good reason to throw in the proverbial towel on the economy just yet. As seen over the past year, stocks of large companies with growing earnings can perform better than other equity types, and a five-star fund like FOCPX can be a a great way to tap into high-quality large-cap growth stocks like Activision Blizzard (ATVI), Alphabet (GOOG, GOOGL) and Amazon (AMZN).
In 2015, through Dec. 18, FOCPX clobbered the S&P 500 with a 9.2% gain. Long-term performance has also been strong for Fidelity OTC, as evidenced by the first percentile rank among large-growth funds for 10-year annualized return.
Best Fidelity Funds for 2016: Fidelity Value Discovery (FVDFX)
Expenses: 0.84%
Minimum Initial Investment: $2,500
2016 could be a year where value stocks take the market lead away from growth stocks, and if you want to take advantage of this potential opportunity, Fidelity Value Discovery (FVDFX) is one of the best Fidelity mutual funds to do this.
With interest rates rising but still low enough to continue the demand for high-quality stocks that pay dividends — such as FVDFX top holdings JPMorgan Chase (JPM), Johnson & Johnson (JNJ) and General Electric — large-cap value funds like this top choice for Fidelity have a real chance of having a winning year in 2016.
Although manager Sean Gavin has been at the helm of FVDFX for about four years, the three-year annualized return of 13.4% beats 95% of large-value funds and the five-year return is ahead of 87% of category peers.
Best Fidelity Funds for 2016: Fidelity Overseas (FOSFX)
Expenses: 1.02%
Minimum Initial Investment: $2,500
Emerging markets look to be too risky for 2016, and investors wanting to diversify with international stock funds are wise to consider a fund like Fidelity Overseas (FOSFX).
A strong U.S. dollar should continue to add support to the corporate earnings of large international exporters in 2016, but emerging markets countries, especially China, could continue to stay negative in the short term.
The FOSFX portfolio consists of two-thirds large-cap Europe stocks like Nestle (NSRGF), Roche Holding (RHHVF) and Sanofi (SNYNF).
FOSFX is coming off a great 2015, sporting a 6.5% gain through Dec. 18; and its long-term returns have consistently beaten over 90% of foreign large-blend funds.
Best Fidelity Funds for 2016: Fidelity Real Estate Investment Portfolio (FRESX)
Expenses: 0.78%
Minimum Initial Investment: $2,500
The real estate market looks to remain healthy in 2016, and a diversified fund like Fidelity Real Estate Investment Portfolio (FRESX) is a good way to capture that sector.
Real estate is one of a handful of sectors that could do well over the next year. Although some of the best gains may be behind us, the fundamentals of strength still remain. For example, rental property is strong primarily because of stronger demand and higher pricing power on rents.
Demand for mutual funds and ETFs that produce high yields will also likely stay strong in 2016, as interest rates (although on the rise) will continue to remain historically low.
The FRESX portfolio includes a handful of large real estate holdings — like Public Storage (PSA) and Simon Property Group (SPG) — but the average market cap consists of mid-cap stocks like Digital Realty Trust (DLR).
Historic returns for FRESX have kept performance ranks ahead of average real estate sector funds.
Best Fidelity Funds for 2016: Fidelity Select Defense & Aerospace Portfolio (FSDAX)
Expenses: 0.79%
Minimum Initial Investment: $2,500
Defense stocks could see a return to a top-performing sector in 2016, and one of the best funds to gain exposure to the defense industry is Fidelity Select Defense & Aerospace Portfolio (FSDAX).
Not to be confused with defensive stocks, defense stocks are equities of firms within the defense industry, which consists of government and business entities that are involved in the production, service and support of military operations, equipment and facilities.
In light of escalating conflicts around the world today, and the likelihood of seeing a more hawkish U.S. president in 2017, it is possible that stocks of large companies like FSDAX top holdings United Technologies (UTX), Boeing (BA) and Honeywell (HON) could perform better than major market indices in 2016.
So for investors who want to add defense stocks to their portfolios, FSDAX is a top-performer. Historical performance has kept the fund ahead of 70% to 90% of defense stock funds.
Best Fidelity Funds for 2016: Fidelity Select Health Care Portfolio (FSPHX)
Expenses: 0.74%
Minimum Initial Investment: $2,500
If you had to pick one sector fund that has the best chances of performing well in 2016 and in the long run, you’d be smart to choose health care, and one of the best funds to buy in that sector is Fidelity Select Health Care Portfolio (FSPHX).
Health care stocks were a market leader in 2015 and the health industry should see long-term profit growth from demand for health services and products by an aging baby boomer generation and advances in biotechnology. Health care stocks are also a good defensive play should the broader market enter a new bear market in 2016.
A look under the hood of FSPHX reveals high-quality health stocks like Medtronic (MDT), Allergan (AGN) and Teva Pharmaceuticals (TEVA).
Although FSPHX fell behind the average healthcare sector fund in 2015, fund manager Edward Loon has been at the helm for seven years and performance during his tenure beats more than 70% of healthcare funds.
Best Fidelity Funds for 2016: Fidelity Select Consumer Staples Portfolio (FDFAX)
Expenses: 0.77%
Minimum Initial Investment: $2,500
Consumer staples funds can be good diversification tools, especially when the market heads into volatility or a new bear market. For this reason, now is a good time to consider buying funds like Fidelity Select Consumer Staples Portfolio (FDFAX).
No matter what the economy is doing, consumers still buy food and go to the doctor. And many of them still buy alcohol and tobacco products. Consumer staples funds hold stocks of companies that produce these products. For example, the top holdings in FDFAX recently were Proctor & Gamble (PG), British American Tobacco (BTI) and CVS Health (CVS).
Performance in the short term has slipped for FDFAX, but fund manager Robert A. Lee, on board since 2004, has produced impressive long-term returns that beat the category averages.
Best Fidelity Funds for 2016: Fidelity Total Bond Fund (FTBFX)
Expenses: 0.45%
Minimum Initial Investment: $2,500
In recent years, the bond market has been difficult to navigate, even for the most seasoned fixed income portfolio managers. Therefore the time-tested wisdom of holding low-cost, diversified bond funds like Fidelity Total Bond Fund (FTBFX) still applies in 2016.
Now that the Federal Reserve has made a move higher on interest rates for the first in nearly a decade, the bond market has a bit more clarity to move forward. And there is soundness in holding a fund like FTBFX, which exposes investors to the entire U.S. bond market.
FTBFX currently holds 1,500 bonds that average at an investment grade credit rating.
The fund doesn’t seek to actively beat a major benchmark, such as the Barclays Aggregate Bond Index. Therefore short-term returns don’t normally beat the category averages. However, as is the case with FTBFX, long-term returns tend to be above-average for the cheaper bond funds.
Best Fidelity Funds for 2016: Fidelity Capital & Income Fund (FAGIX)
Expenses: 0.72%
Minimum Initial Investment: $2,500
Investors searching for yield or those wanting to add a high-yield bond fund to the fixed income portion of their portfolio will like what they see in Fidelity Capital & Income Fund (FAGIX).
The dampening of high yields in 2015 were primarily driven by the energy and commodity sectors. Next year could see some of those dark clouds lifted and high-yield could gain strength as a result.
Although FAGIX is categorized as “high-yield bond,” it strategically holds a handful of dividend-paying stocks. The asset allocation for the fund is approximately 70% bonds, most of which are high-yield corporate issues, and 20% stocks, including top holdings like Skyworks Solutions (SWKS) and Valeant Pharmaceuticals (VRX), with the remaining 10% allocated to cash.
This mix of high-yield corporate bonds and diverse stock holdings makes for a powerful combination that keeps FAGIX near the top of performance rankings. Investors looking for income will also like the 4% yield.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. However he holds FUSEX in some client accounts. 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.
