The 12 Best Fidelity 401k Funds to Own

fidelity 401k - The 12 Best Fidelity 401k Funds to Own

Source: Grk1011 via Wikipedia (Modified)

If you’re investing for the long-term, 401k plans make things easy, and they’re advantageous. But no plan is created equal. Some are excellent. Some are meh. Some are horrendous. One quick test of your plan’s health: Does it include Vanguard or Fidelity 401k funds?

Fidelity FundsIf not, that’s strike one.

Strike two is a lack of diversified investments.

And strike three is a glut of high-cost investments.

The good news: Fidelity and Vanguard both provide lower-cost higher-end investment products in most plans. That leaves you in the driver’s seat of a better financial future.

My specialty is Fidelity, though, so today I bring you 12 Fidelity 401k funds that should get you to your retirement in a faster and safer manner. (And if your plan doesn’t offer one or more of these funds, ask that they be considered for inclusion!)

The Best Fidelity 401k Funds to Own: Fidelity Contrafund (FCNTX)

Expenses: 0.71%
Minimum Initial Investment: $2,500

Fidelity Investor 401K Focus members know this manager by heart. Manager Will Danoff is having a difficult 2016 — one, however, that is set against a backdrop of a remarkably consistent career of outperformance. Year-to-date through Nov. 30, Contrafund (MUTF:FCNTX) is up just 3% to the S&P 500’s nearly 10% gain. However, since he began managing in September 1990, Danoff has returned 2,277% versus 1,100% for the S&P 500 despite several bouts of underperformance (trailing the S&P 500 in 10 years out of 25 years).

I lay this at your feet to dissuade you from walking away from his fund because of what appears to be another trailing time period in 2016.

Danoff uses his own honed version of a contrarian approach to investing. A contrarian approach is defined by going against the grain; buying unloved, overlooked, dismissed and dissed companies which often turn out to market darlings over Danoff’s holding span. This can mean that, from time to time, Danoff looks decidedly non-contrarian, but in reality it tends to reflect moments when the broader market and investing herd has validated Danoff’s instincts, reasoning and lower price purchases of companies that everyone wants a piece of.

One attribute of this stellar manager that rarely comes into view: His long-term track record is built not just in besting the best of times, but in consistently losing less in downdrafts.

FCNTX is a mostly U.S.-focused fund with just 7.3% dedicated to internationals. It’s heavy in information technology (38.9%), with significant holdings in consumer discretionary (18.5%) and financials (13%) as well.

Top holdings are a who’s who of blue chips, including Facebook Inc (NASDAQ:FB), Berkshire Hathaway Inc. (NYSE:BRK.B) and, Inc. (NASDAQ:AMZN).

Learn more about FCNTX here.

The Best Fidelity 401k Funds to Own: Fidelity Event Driven Opportunities Fund (FARNX)

Expenses: 1.14%
Minimum Initial Investment: $2,500

A hidden gem is a great fund no one knows about, and Fidelity Event Driven Opportunities Fund (MUTF:FARNX) is a hidden gem.

Manager Arvind Navaratnam created this fund to buck trends as well as ride them. I view his investment style as a more rules-based approach to a loosely defined version of being contrarian. My opinion of his fund: A great idea and a good fit within the fold of a well-diversified growth-oriented portfolio.

Arvind invests in companies that are involved in some sort of special event, such as corporate reorganizations, changes in ownership, removal from an index, management changes, corporate strategy changes or changes in capital structure. He has returned 13.6% versus 19.7% for the fund’s Russell 3000 benchmark since he began managing at its December 2013 inception. However, I don’t think there’s an adequate index against which you can clearly and consistently benchmark this fund.

Fidelity Investor 401K Focus can use FARNX as a kind of hedge or insurance policy against mimicking the S&P 500. That decision and my positioning of the fund has tended to pay off over investment time periods, but is clearly out of step with this year’s momentum march into the S&P 500.

FARNX has a very small (by Fidelity standards) market value of $190 million; each pick is as a result potentially more impactful. The fund’s top sectors are consumer discretionary (22.9%), information technology (20.6%) and financials (13%), plus double-digit weightings in consumer staples (12%) and industrials (10%). Recent top holdings include Universal Corp (NYSE:UVV), Exterran Corp (NYSE:EXTN) and Madison Square Garden Co (NYSE:MSG).

Learn more about FARNX here.

The Best Fidelity 401k Funds to Own: Fidelity International Growth Fund (FIGFX)

Expenses: 0.97%
Minimum Initial Investment: $2,500

File this under a place people like to vacation but most fear to invest in.

Relative to his fund’s benchmark, the MSCI EAFE Growth Index, Fidelity International Growth Fund (MUTF:FIGFX) manager Jed A. Weiss is faring well, down just 4.3% to the index’s % losses.

Relative to the S&P 500’s gains, you may be thinking, “I don’t give a farthing (I’m translating the polite version here) about how he is doing relative to his benchmark.” To that, I advise to not forget to put his near-term performance into long-term perspective: FIGFX has returned 22.2% versus a loss of 10.8% for the fund’s benchmark since Weiss began managing at the fund’s November 2007 inception.

Still, I get it. It is never fun to own something that is down. It’s even less fun to own something that is down when other things that you could own are significantly up. Still, owning a diversified portfolio is the proven way to arrive at long-term gains, no matter what bumps in the road there may be between now and 10 years hence.

Weiss and his team are on the ground hunting day in and day out for best-of-breed plays at discounted prices — his analysis has proven its worth. Better analysis wed to the capability of better execution is another advantage Weiss brings to our portfolio. Out-thinking and out-executing the competition — not the same thing as trying to be smart-alecky about outsmarting others — means the upturn can often be earlier, longer and greater … when that upturn happens.

The majority of FIGFX’s assets are in international assets, though the U.S. still is a fund-leading 22.8% of the holdings, followed by Japan (13.9%), Switzerland (13.5%), the U.K. (10.1%) and Spain (5.2%). Emerging markets make up just 6.5% of the holdings, though they can make up 20% by prospectus.

From a sector perspective, consumer staples like those offered by top holding Nestle SA (OTCMKTS:NSRGY) take top billing at 19.75%, followed by healthcare stocks (17.9%) such as Roche Holdings (OTCMKTS:RHHBY) and information technology stocks (16.1%) including SAP SE (ADR) (NYSE:SAP).

Learn more about FIGFX here.

The Best Fidelity 401k Funds to Own: Fidelity Large Cap Stock Fund (FLCSX)

Expenses: 0.78%
Minimum Initial Investment: $2,500

Fidelity Large Cap Stock Fund (MUTF:FLCSX) manager Matt Fruhan — who also runs Fidelity Mega Cap Stock (MUTF:FGRTX) as well as Fidelity Growth & Income (MUTF:FGRIX) — invests in companies with market caps similar to those found in the Russell 1000 Index or the S&P 500 Index (the average market cap of companies found in the S&P 500 is $35 billion).

Here, Fruhan has returned 151.3% versus 127.0% for his benchmark since he began managing the fund back in May 2005. Year-to-date through November, he’s not lagging but leading — up 14.4% vs. 9.8% for his S&P 500 benchmark.

The fund is a complement to Contrafund, suitable in Growth and Aggressive Growth portfolios. FLCSX lets Fruhan encompass U.S. larger-cap stocks, not just mega-cap multinationals. The correlation between to the two funds is 95%, so this isn’t necessarily a diversification move so much as it is a move that seeks to benefit from Fruhan’s long-term stock-picking prowess across a broader playing field.

This fund is heaviest in financials (21.6%) and information technology (20.7%), though it’s also thickly invested in healthcare (13.8%), energy (13.1%) and industrials (11.5%). Top holdings include JPMorgan Chase & Co. (NYSE:JPM), General Electric Company (NYSE:GE) and Apple Inc. (NASDAQ:AAPL).

Note: Fidelity Investor members have access to my exclusive December interview with Fruhan.

Learn more about FLCSX here.

The Best Fidelity 401k Funds to Own: Fidelity Low-Priced Stock Fund (FLPSX)

Expenses: 0.88%
Minimum Initial Investment: $2,500

Longstanding Fidelity Investor 401K Focus members know my views on Fidelity Low-Priced Stock Fund (MUTF:FLPSX) and lead manager Joel Tillinghast well: Both are inimitable.

Let me make it crystal clear: If I could only one one fund, I would own this fund. No 401k plan should be without it. Every 401k investor should own it.

Tillinghast (along with six other managers who run 5% of this fund under his tutelage) only buys stocks that are priced at $35 or less. Joel himself often describes the $35 purchase price governor as little more than a marketing gimmick. But to meet Joel is know that such suggestions reflect an admixture of wry mirth and factual assertion en route to irony’s truth.

By his nature, but also in his stock-picking practice, that price limit has helped temper the fund in heated times. For example, when sock puppet stocks were all the rage back in 1999, and you couldn’t buy any stock under $35 (the price limit back then), Joel was forced out of the herd’s stampede and into, then over the bubble’s precipice. By nature and in practice, Joel was then able to hunt among the market ruins, where he could (and often did) purchase mega-cap blue chips that were selling at under $35. Then, since there’s no limit to price in terms of how long he can hold an investment he bought below $35, he could ride the market back to its prior top and through its record-breaking peaks en route to, inevitably, the next drop.

For the record, since he launched this fund, he has traveled this low-priced path through market feasts and famines with tremendous skill and enormous success, returning 2,926.5% versus 938.2% for his Russell 2000 benchmark.

Perhaps most importantly, given my comments about International Growth above, he has traveled this path globally, not just domestically. Joel Tillinghast was among the first truly global market investors and is a true global market master. He runs with approximately a third of his fund’s assets in established foreign-market stocks.

The top sectors are consumer discretionary (24.2%), information technology (17.3%) and healthcare (11.9%). Top holdings include UnitedHealth Group Inc (NYSE:UNH), Ross Stores, Inc. (NASDAQ:ROST) and Seagate Technology PLC (NASDAQ:STX).

Learn more about FLPSX here.

The Best Fidelity 401k Funds to Own: Fidelity Select Healthcare Fund (FSPHX)

Expenses: 0.73%
Minimum Initial Investment: $2,500

Fidelity Select Healthcare Fund (MUTF:FSPHX) is good for what ails any long-term concerns. I like the necessary growth demographics and increasing emerging-market consumer demands in the healthcare space, broadly diversified among blue-chip dividend payers and hot-topic biotech companies and filtered through the capable hands of manager Eddie Yoon, whose track record speaks for itself: He has returned 293.9% versus 203.0% for the Dow Jones U.S. Healthcare Index since he began managing the fund in October 2008.

Yes, there are clouds of unknowns hovering over this shining long-term sector. Price regulation, even if not mandated by political motivations, are likely to play out along the lines of a free market where more and better generic options are garnering market share. Product innovation could be negatively impacted by price regulation … but not likely inside any time frame that Yoon couldn’t manage and maneuver through.

Yoon manages this macro healthcare fund that covers the gamut of the industry: Pharmaceuticals, HMOs, biotech, medical equipment and systems companies. There’s not an area of the healthcare sector — or a piece of it that relates to other industries, our economy and the global marketplace — that Yoon isn’t aware of and analytically advanced about. Put it another way: If underperformance is an illness, Yoon has consistently proven that he’s got the cure.

Foreign investments currently make up 10.9% of the holdings, but Yoon’s exposure to foreign markets is much greater, given that many of his holdings are multinational.

FSPHX invests most heavily in the biotechnology (28.5%), health care equipment (28%) and pharmaceuticals (19.5%) industries. The top holdings at the moment are Medtronic PLC (NYSE:MDT), Allergan PLC (NYSE:AGN) and Amgen, Inc. (NASDAQ:AMGN).

Learn more about FSPHX here.

The Best Fidelity 401k Funds to Own: Fidelity Strategic Dividend & Income Fund (FSDIX)

Expenses: 0.78%
Minimum Initial Investment: $2,500

Fidelity Strategic Dividend & Income Fund (MUTF:FSDIX) is my preferred anchor to windward. When the wind is at this fund’s back, it can sail along with the broader markets. When the wind turns against it, the fund and manager can tack to allay market-like listing.

While I never expect FSDIX to be the leader of my performance pack, I also don’t expect it to be a significant performance drag. This isn’t the same thing as saying that it won’t lead or lag in intermittent time periods — it has, and it will. But its role inside my portfolios is crystal clear: a diversified battle ship built more for defense than speed.

Lead manager Joanna Bewick, along with four other managers, invests in stocks, preferred stocks, real estate investments and convertible securities. The current mix is 49.3% stocks, 17.2% preferred, 13.7% REITs, and 17% convertibles. She has returned 66.1% versus 83.1% for a blend of indices representing the targeted investment mix of the fund since she began managing in April 2008. Over the past year, however, she has returned 7.9% versus 5%.

I use this fund as either a complement or alternative to a classic balanced fund (think 60% S&P 500 stocks and 40% bond blend).

Top holdings Microsoft Corporation (NASDAQ:MSFT) and Johnson & Johnson (NYSE:JNJ) lead a portfolio that’s weighted most heavily in IT (14.5%) and real estate (14.1%).

Learn more about FSDIX here.

The Best Fidelity 401k Funds to Own: Fidelity Floating Rate High Income Fund (FFRHX)

Expenses: 0.7%
Minimum Initial Investment: $2,500

After years — really, one could say decades — of being able to ignore inflation, now, inflation is looming.

Whether inflation weaves itself into a picture of its historical average rate of around 3%, or goes higher thanks to realized (rather than currently assumed) inflationary deficit spending, Fidelity Floating Rate High Income Fund (MUTF:FFRHX) owns the types of instruments that engage in the ever-shifting sea state of very short-term notes and bonds.

Manager Eric Mollenhauer invests in floating-rate loans — tradable paper that can have duration ranging from several weeks to many months. They tend to be riskier income investments, since their yield fluctuates more than that of most types of bond funds. But because they’re repriced in very short-term increments, they can better defend against inflation’s toll.

Learn more about FFRHX here.

The Best Fidelity 401k Funds to Own: Fidelity Government Cash Reserves Fund (FDRXX)

Expenses: 0.37%
Minimum Initial Investment: $2,500

Here is a fund that almost everyone owns, but nobody likes — but in 2017, I think that’s about to change.

Formally called Cash Reserves, this money market fund’s name was changed a year ago to Fidelity Government Cash Reserves Fund (MUTF:FDRXX) to remain exempt from the recent money market redemption restrictions (you can read in depth about those changes in your March 2015 issue).

Manager Kevin Gaffney began managing the fund back in January 2015. The fund began trading in May 1979 and has a market value of $138 billion. A staple buffer choice and clear liquidity play, its near-total lack of yield has made it a costlier kind of insurance policy and source of ready cash than in prior decades. (The fund’s yield has been 0.01% since early 2012.)

However, beginning in March, the yield has been ticking up. If we continue to see our economy grow fast enough to find inflation heating up, this fund should see its yield rise in tandem with each inflation-fighting Fed rate hike.

Learn more about FDRXX here.

The Best Fidelity 401k Funds to Own: Fidelity Strategic Real Return Fund (FSRRX)

Expenses: 0.82%
Minimum Initial Investment: $2,500

Fidelity Strategic Real Return Fund (MUTF:FSRRX) is a new addition to the portfolios. This fund’s strategic mix is designed to offer a diversified buffer against inflation and provide a more beneficial way to maneuver in more growth-oriented climes.

Lead manager Joanna Bewick — who also is the lead manager in Fidelity Strategic Dividend & Income Fund — along with the help of six other managers, again uses an investment guide, which comprises the following: 30% inflation-protected bonds, 25% floating-rate bonds, 25% commodity investments, and 20% real estate investments.

Since Bewick’s April 2008 inception, she has returned 13.5% versus 2.3% for a blend of indices representing the targeted investment mix.

The fund began trading in September 2005 and has a market value of $500 million. FSRRX currently yields 2.2%.

Learn more about FSRRX here.

The Best Fidelity 401k Funds to Own: Fidelity Total Bond Fund (FTBFX)

Expenses: 0.45%
Minimum Initial Investment: $2,500

I’m trimming Fidelity Total Bond Fund (MUTF:FTBFX) a bit in our Growth & Income model portfolio. A staple and a stable diversified bond fund if ever there was one — with the added advantage of being well-managed.

Lead manager Ford O’Neil, along with three other managers, invests in all types of bonds, while using the Bloomberg Barclays U.S. Universal Bond Index as an investment guide. The current mix is 76.3% investment-grade, 15.5% high-yield, and 4.5% emerging markets bonds.

O’Neil  has returned 76.7% versus 71.9% for the fund’s benchmark since he began managing in December 2004.

The fund began trading in October 2002 and has a market value of $20.9 billion. Foreign investments make up 11.9% of the holdings. FTBFX yields 2.9%.

Learn more about FTBFX here.

The Best Fidelity 401k Funds to Own: Fidelity New Markets Income Fund (FNMIX)

Expenses: 0.86%
Minimum Initial Investment: $2,500

If you don’t want to own the debt, you don’t want to own the stock. That investment maxim has hovered in my head with specific regard to emerging markets for about as long as I’ve been investing in them.

If I want to own the debt, I want to own John Carlson, the manager of Fidelity New Markets Income Fund (MUTF:FNMIX). I’m glad we did — so far this year, this 6.2%-yielding fund is up 12.1%.

Carlson invests mostly in emerging-market bonds, though developed markets often can and currently do make up a sizable portion of his holdings (currently 14.4%). FNMIX has returned 965.6% versus 758.8% for the fund’s benchmark since Carlson began managing in June 1995.

A quick look at the countries he invests in will tell you whether your risk tolerance and his are well-matched: U.S. (12.2%), Mexico (11.3%), Brazil (9.7%), Venezuela (7.7%), and Russia (7.2%). Venezuela. Russia. Not everybody’s cup of tea. But in the hands of John Carlson, and in small sips rather than guzzles, this fund provides buffer and income diversification and yield enhancement.

Of course, with the trade-related unknowns surrounding this new administration, there’s a host of potential unwanted emerging-market meltdown outcomes. But there’s also the upside of a seasoned manager being able to walk among any ruins and find fragments of lasting long-term value. That’s why, as a diversifying buffer for long-term growth-oriented investors, as well as for a diversifying income enhancer for more income-oriented investors, I continue to think that a small position in this fund makes sense.

Learn more about FNMIX here.

Jim Lowell is the editor of Fidelity Investor. Click here for Jim’s latest special report and discover Fidelity’s Top 20 Favorite Stocks — the most-owned, and most-liked, by Fidelity’s top managers.

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