Fidelity mutual funds have generally earned a stellar reputation. It isn’t just that the company has been around for so long, but that Fidelity has a history of hiring some really solid managers. In trying to figure out what the best Fidelity mutual funds for 2018 are, I was faced with a real challenge. There are a huge variety of funds to choose from.
The best Fidelity mutual funds for 2018 could be pulled from any number of different asset classes and styles.
Instead, I chose to just pick three funds that I thought would have the best chances of outperforming the market this year. Whether these turn out to be the best Fidelity mutual funds for 2018 remains to be seen, but each fund has a different style, approach, and level of risk.
Which one, if any, you consider for your portfolio is going to depend on many different factors, but I encourage you to look at the risk metrics very closely.
Fidelity Advisor Strategic Income Fund (FSTAX)
Fidelity Advisor Strategic Income Fund (MUTF:FSTAX) earns a four-star Morningstar rating, with a yield of 3.04%. While I’m not thrilled with the 1% expense ratio, it is average for this type of fund, and I think it is a good candidate to be one of the best Fidelity mutual funds for 2018.
FSTAX invests in a variety of debt instruments across all maturities and geographies. Of these, 16% are in U.S. treasury notes, 15% in non-U.S. government bonds, 8% in corporate bonds and 9% in securitized products. Almost half of the fund is devoted to non-U.S. investments.
The risks are with rising interest rates, which could drive the value of current bonds down. The fund has an average annual return over the past 10 years of 5.6% with a standard deviation of 6.3, meaning it has a 95% probability of returning between -7% and +18.2% in any given year.
Fidelity Low-Priced Stock Fund (FLPSX)
Fidelity Low-Priced Stock Fund (MUTF:FLPSX) has a very successful history as a small- and mid-cap value fund and has a four-star Morningstar rating. What’s interesting is that investors pulled a lot of money out of the fund last year, and large-cap stocks ruled the market. That’s one reason why it might be one of the best Fidelity mutual funds for 2018.
However, both small-cap and value stocks outperform large-cap growth stocks in the long term. These are important elements of any portfolio, and I think we will see a rotation back into these stocks when the overall market starts to correct further.
I like the risk-return upside here. Its 15-year average annual return is 11.9% with an standard deviation of 14.7, leading to a 95% probability of a range between -17.3% to 41.3%. That’s a volatile history, to be sure. However, I lean toward outperformance this year.
Fidelity Contrafund Fund (FCNTX)
Fidelity Contrafund Fund (MUTF:FCNTX) is a legendary fund and has a real shot at being one of the best Fidelity mutual funds for 2018. It is also a four-star Morningstar rating with a very long history. The fund has a very reasonable expense ratio of 0.74%.
It also surprises me in that it only has a turnover rate of 29%. Management likes to hold onto its positions to a greater degree than other funds.
Yes, it holds many mega-cap stocks that I believe are overvalued, but there is no arguing that it has a reasonable (if not spectacular) risk-adjusted return performance.
Its 15-year average annual return is 12%, better than 9.44% for the S&P500. It has a standard deviation of 13, leading to a 95% probability of a range between -14% to 38%. The S&P 500’s standard deviation is also 13, though, so FCNTX has a much better return with the same risk.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance, and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at [email protected].