The Perfect 10: Build a Fidelity Investments Portfolio

Hundreds of Fidelity funds later, we present the ten best

Fidelity Investments is one of the few mutual fund companies offering a wide variety of high-quality, low-cost funds. Therefore, it’s quite possible for investors to build an entire portfolio made exclusively of Fidelity funds.

The only real challenge in building a portfolio of Fidelity funds is that there are hundreds of them to choose from. So to make your job easier, we did the research and analysis to handpick 10 of the best Fidelity funds that can work well as a diversified unit. From there, you can choose the best allocations to suit your risk tolerance and investment objectives.

Our final selections cover the stock and bond spectrum, from a core stock fund holding, to small- and mid-cap stock funds, international stock funds, sectors, a core bond holding, high-yield and global bond funds.

So with that formal introduction out of the way, we give you the 10 best Fidelity funds to build the perfect portfolio.

Essential Fidelity Funds: Fidelity Spartan 500 Index Fund Investor Class (FUSEX)

Expenses: 0.095%, or $9.50 for every $10,000 invested
Minimum Initial Investment: $2,500

The best place to start a portfolio of mutual funds is with a low-cost stock index core holding like Fidelity Spartan 500 Index (FUSEX).

The rock-bottom expense ratio and tight index tracking for FUSEX earned the fund a prime slot on our list of best index funds to hold for the long run. It even beat out index fund legend Vanguard 500 Index (VFINX).

S&P 500 funds make outstanding core holdings because they passively invest in about 500 of the largest U.S. stocks like Apple Inc. (AAPL), Microsoft Corporation (MSFT) and Exxon Mobil Corporation (XOM).

Now you’re ready to build around the core with several other Fidelity funds in diverse categories.

Essential Fidelity Funds: Fidelity Spartan Mid Cap Index Fund (FSCLX)

Expenses: 0.22%
Minimum Initial Investment: $2,500

Fidelity has some of the best actively managed funds in the investment universe, but for the mid-cap stock portion of your portfolio Fidelity Spartan Mid Cap Index (FSCLX) looks to be the best choice for long-term investors.

As is the case with many index funds, the low expenses and passive management for FSCLX has tended to be an advantage over its active peers when it comes to long-term performance. Although the fund has only been around for about 3.5 years, FSCLX tracks the Russell Midcap Index, which has historically outperformed the average mid-cap blend mutual fund in the long run.

And unlike some mid-cap stock funds that buy large caps and small caps, FSCLX is true to its label, which means you’ll get an authentic mid-cap fund that will not overlap with other funds in your portfolio.

For example, the top holdings in FSCLX — Southwest Airlines Co (LUV), AON PLC (AON) and Crown Castle International Corp (CCI) — have market caps that are less than half that of the average market cap in the S&P 500.

Essential Fidelity Funds: Fidelity Small Cap Value Fund (FCPVX)

Expenses: 1.19%
Minimum Initial Investment: $2,500

Fidelity Investments offers several funds that invest in small-cap stocks, but there is only one outstanding choice that is still open to new investors and that’s Fidelity Small Cap Value (FCPVX).

Although the expense ratio for FCPVX is higher than Fidelity’s index funds, the expenses for the fund are still average for the small-cap category. More importantly, the historic returns for this five-star fund have been solid, with performance consistently ranking in the top 10% to 20% versus category peers. Therefore the expenses are well worth the potential outperformance.

One small caveat is that the fund manager, Derek Janssen, has been at the helm of FCPVX for just a little more than three years. But this relatively brief tenure is no real concern because the 10.7% three-year annualized return beats 85% of the category peers; and one of the biggest strengths of Fidelity Investments are the research and analyst teams supporting their actively managed funds. Therefore, manager tenure is not a major concern with Fidelity’s actively managed funds.

Essential Fidelity Funds: Fidelity Overseas Fund (FOSFX)

Expenses: 1.04%
Minimum Initial Investment: $2,500

To cover international stocks in developed countries, the best choice at Fidelity Investments, and most other mutual fund companies for that matter, is Fidelity Overseas (FOSFX).

This five-star international stock fund normally invests at least 80% of its assets in non-U.S. and it primarily covers large-cap stocks in Greater Europe, including top holdings like Nestle SA (NSRGF), Novartis AG (NVSEF) and Bayer AG (BAYZF).

FOSFX handily beats the MSCI EAFE and its foreign large-blend category peers in the one-, three-, five- and 10-year returns. Even more impressively, the fund beats its index bogey since its 1984 inception.

Essential Fidelity Funds: Fidelity Total Emerging Markets Fund (FTEMX)

Expenses: 1.40%
Minimum Initial Investment: $2,500

To complete the international mix of the Fidelity Investments portfolio, you’ll need Fidelity Total Emerging Markets (FTEMX).

FTEMX invests primarily in securities, both stocks and bonds, of issuers in emerging markets, as defined by MSCI. Therefore shareholders get broad investment exposure to emerging Asia and Latin America.

Top holdings include Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (TSM), Naspers Limited (ADR) (NPSNY) and Alibaba Group Holding Ltd (BABA).

Although the fund is relatively young, with an inception of Nov. 1, 2011, FTEMX has earned a five-star rating and has handily beat the MSCI Emerging Markets Index and the average emerging markets fund since inception.

Essential Fidelity Funds: Fidelity Select Health Care Portfolio (FSPHX)

Expenses: 0.74%
Minimum Initial Investment: $2,500

Now we begin to add to the solid foundation of Fidelity Investments in the portfolio thus far with sectors and Fidelity Select Health Care (FSPHX) is a good place to start.

With the combination of an aging population and the great potential for expanding biotechnology breakthroughs, the health sector is bound to be among the leaders in the years and decades to come.

While high-flying biotech funds like Fidelity Select Biotechnology Portfolio (FBIOX) had sector-crushing returns in the past few years, 2016 has seen a major correction for the health sub-sector. But FSPHX has participated in the performance, it has avoided much of the worse downside.

FSPHX concentrates on high-quality health care stocks like Medtronic PLC (MDT), Allergan plc Ordinary Shares (AGN) and Teva Pharmaceutical Industries Ltd (ADR) (TEVA).

Essential Fidelity Funds: Fidelity Select Software & IT Services Portfolio (FSCSX)

Expenses: 0.77%
Minimum Initial Investment: $2,500

Another sector that will likely be an industry leader for the foreseeable future is technology, and Fidelity Select Software and IT Services (FSCSX) is a top performer in this sector.

In addition to the deep research and analyst team at Fidelity Investments, FSCSX benefits from a very reasonable expense ratio for such a well-managed fund. This combination has resulted in long-term annualized returns that beat more than 90% of technology funds.

The portfolio recently held 68 stocks like Alphabet Inc (GOOG, GOOGL), Facebook Inc (FB) and Salesforce.com, inc. (CRM).

Essential Fidelity Funds: Fidelity Select Retailing Portfolio (FSRPX)

Expenses: 0.81%
Minimum Initial Investment: $2,500

Our third and final sector fund for the portfolio of 10 Fidelity funds is another five-star fund, Fidelity Select Retailing (FSRPX).

You’d be hard pressed to find a fund that has dominated its category peers as much as FSRPX has in the past decade. Although performance has slipped a bit in 2016, the 1-, 3-, 5-, and 10-year annualized returns put FSRPX in the top 1% of consumer discretionary sector funds.

Like many other actively-managed funds at Fidelity Investments, FSRPX benefits from reasonable fees and a strong analyst team. Although fund managers tend to change every few years, they are often culled from the skilled and experienced team.

FSRPX also benefits from timely purchases of and outsized returns from holdings like Amazon.com, Inc. (AMZN), Home Depot Inc (HD) and TJX Companies Inc (TJX).

Essential Fidelity Funds: Fidelity Spartan U.S. Bond Index Fund Investor Class (FBIDX)

Expenses: 0.20%
Minimum Initial Investment: $2,500

When building a portfolio of mutual funds, it’s smart to use a low-cost, broadly diversified bond index fund like Fidelity Spartan U.S. Bond Index (FBIDX).

FBIDX passively tracks the Barclays U.S. Aggregate Bond Index, which means you’ll get exposure to about 1,500 bond securities spanning the fixed income spectrum from U.S. Treasury bonds and corporate bonds to mortgage-backed securities and a range of maturities.

And with one of the mutual fund industry’s lowest expense ratios, FBIDX will squeeze out every ounce of return by keeping portfolio management costs to a minimum. For this reason, FBIDX also made our list of 10 best funds for your 401(k).

Essential Fidelity Funds: Fidelity Global High Income Fund (FGHNX)

Expenses: 1.05%
Minimum Initial Investment: $2,500

To add diversity to the fixed income portion of our Fidelity funds, and to boost long-term returns, we’ll finish the portfolio with Fidelity Global High Income (FGHNX).

The portfolio consists primarily of high-yield bonds that are rated below investment grade, or what some investors might call “junk bonds.” The global objective covers a large portion of the fixed income universe with about half of the fund assets in the U.S. and the other half predominately in Europe.

The 1.05% expense ratio is above average, but so is the outstanding 6.15% yield. And with over 500 holdings, plus the skilled and experienced Fidelity analyst team, FGHNX shareholders can expect returns to be consistently above average for high-yield bonds, which has been the case for most of the fund’s five years since inception.

To summarize our list of 10 best Fidelity funds to build the perfect portfolio, we have a diversified mix of stocks and bonds, passively managed and actively managed funds, all of which are among the best Fidelity Investments has to offer.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he holds FUSEX in some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, South Carolina. Under no circumstances does this information represent a recommendation to buy or sell securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/fidelity-investments-portfolio-mutual-funds/.

©2019 InvestorPlace Media, LLC