Fidelity gets a lot of things right, and their defensive sector funds are near the top of that list. Investors looking to strengthen their portfolios with defensive stocks would be smart to include Fidelity funds in their search.
Fidelity only offers some of the cheapest index funds on the market today, and the fund company also has an experienced management and research staff that is the backbone of its outstanding actively managed funds.
This combination of low expenses and high-quality management makes for some of the best defensive sector funds to buy, whether for short-term protection against a major correction or for a good diversification tool in a long-term investment strategy.
These three Fidelity funds held up well in the recent market downturn and have also put up strong long-term performance numbers. Here are the best Fidelity funds to buy to protect your portfolio.
Best Fidelity Funds to Protect Your Portfolio: Fidelity Select Utilities Portfolio (FSUTX)
Expenses: 0.80%, or $80 for every $10,000 invested
Minimum Initial Investment: $2,500
Utilities stocks are well known for their defensive qualities, and Fidelity Select Utilities Portfolio (FSUTX) is a standout in this category of sector funds.
When the investor herd sentiment shifts to risk-off mode, investors like to turn to defensive sectors like utilities. After all, even in economic slowdowns, consumers still need their heat, gas and electric. Therefore, the funds that hold high-quality utility companies can hold up better than the major market indices. Top holdings for FSUTX include NextEra Energy Inc (NEE), Exelon Corp (EXC) and Sempra Energy (SRE).
For example, for the year so far, FSUTX has limited its losses to 0.7%, whereas the S&P 500 index had a price drop of 7.5%. This year-to-date performance for FSUTX beat 78% of utilities funds. And during the tenure of current manager Douglass Simmons, FSUTX has put up a 6.6% annualized 10-year return, which beats 62% of category peers.
Best Fidelity Funds to Protect Your Portfolio: Fidelity Select Health Care Portfolio (FSPHX)
Expenses: 0.74%, or $74 for every $10,000 invested
Minimum Initial Investment: $2,500
When stock prices turn south, a solid healthcare fund like Fidelity Select Health Care Portfolio (FSPHX) can make for a smart diversification tool.
While biotechnology stock funds like Fidelity Select Biotechnology Portfolio (FBIOX) can put up big short-term gains, and can be good long-term choices, they can lose big in a fast and furious downturn. But large, high-quality healthcare stocks tend to hold up better than the broad market indices.
Therefore, the best healthcare funds to protect your portfolio against downturns are ones like FSPHX with a diverse selection of big health company names like Medtronic (MDT), Allergan (AGN), and Teva Pharmaceuticals (TEVA).
Best Fidelity Funds to Protect Your Portfolio: Fidelity Select Consumer Staples Portfolio (FDFAX)
Expenses: 0.77%, or $77 for every $10,000 invested
Minimum Initial Investment: $2,500
If you could only buy one defensive stock fund from Fidelity to protect your portfolio against steep declines, a good choice would be Fidelity Select Consumer Staples Portfolio (FDFAX).
Like other defensive stock sectors, consumer staples can see declines in a major market correction but the losses are usually minimized. And just as important, when stock prices resume their rise, consumer staples stocks often participate in those gains.
For example, in the 2008 stock meltdown, the S&P 500 index fell 37%, whereas FDFAX fell 22.3%. And in the 2009 recovery, FDFAX jumped 20.9% while the S&P 500 climbed 26.5%. Therefore the losses were much worse for the broader market compared to the Consumer Staples Portfolio, whereas the gains were only modestly greater for the S&P.
Consumer staples funds like FDFAX can hold up in downturns because consumers aren’t quick to cut back on the bare necessities, which provides relative price stability to top holdings in FDFAX like Proctor and Gamble (PG), British American Tobacco (BTI), and CVS Health (CVS).
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.
