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Fidelity Select Funds: Best, Worst, and 2013 Forecast
Sam Subramanian PhD, MBA
Year 2012 is ending on an up note. With just a few more trading days to go, Fidelity Spartan 500 Index Fund (FUSEX) that tracks the S&P 500 index ($SPX) is up a healthy 15% for the year.
Forty of the 42 Fidelity sector funds are in the black this year.
Fidelity Select Biotechnology (FBIOX) with a year-to-date return of 38% leads the performance table for Fidelity sector funds.
Fidelity Select Construction & Housing (FSHOX) and Fidelity Select Consumer Finance (FSVLX) are runners up with returns of 34% and 31%, respectively.
While several industries from different sectors have managed to climb to the top of the year-to-date performance charts, commodity-oriented groups generally have lagged.
Fidelity Select Gold (FSAGX) finds itself at the bottom of this year's performance table having lost 12%.
Fidelity Select Energy Services (FSESX) is the only other losing Fidelity sector fund.
Fidelity Select Biotechnology was included in AlphaProfit's model portfolios in 2012. AlphaProfit's proven process selected the year's best performing Fidelity Select Fund in 2011, 2010, 2009, 2008, 2005, 2002, and 2001 as well.
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AlphaProfit's multidimensional sector evaluation and selection process has consistently selected the best Fidelity Select funds. See: Fidelity Select Funds: Choose the Best Fidelity Sector Fund Consistently
AlphaProfit Premium Service and its model portfolios have bagged Hulbert Financial Digest's #1 rank 12 times.
A dollar invested in AlphaProfit's Fidelity Aggressive Growth (Fidelity Focus) and Fidelity Capital Appreciation (Fidelity Core) model portfolios is worth $48.48 and $24.35, respectively.
This implies annualized returns of 20.6% and 16.6%, respectively.
Comparable investments in the Dow Jones Wilshire 5000 ($DWCF) and S&P 500 benchmarks are worth $6.42 and $6.32, respectively implying annualized returns of 9.4% and 9.3%, respectively.
Performance of Fidelity Focus and Fidelity Core mutual fund model portfolios as of September 30, 2014.
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Best Fidelity Select Funds: 2013 Forecast
Trading now enters the home stretch for 2012. Investors are concerned about the U. S. fiscal cliff, European recession, and long-term effects of quantitative easing.
Offsetting these negatives, the U. S. housing market is sustaining its recovery. Confidence among U. S. homebuilders has increased to a six and one-half year high.
Following several months of deceleration, China's economy is now showing signs of accelerating as stimulus measures work through the system.
So, what will be the best Fidelity Select Fund in 2013?
Commonly used sector selection methods that rely solely on relative strength would favor momentum leaders like biotechnology and housing in the market milieu.
While biotechnology and housing groups can certainly have the edge in the early going, odds of their momentum fading down the road are high.
Analysis of Fidelity Select Funds over two decades shows no fund has taken honors for being the best performer three years in a row. With Fidelity Select Biotechnology likely to take honors as the best performing Fidelity Select fund in both 2011 and 2012, history is not on its side in 2013.
As for housing investments, valuation is a concern. While fundamentals for housing stocks remain compelling, these stocks have enjoyed a good run. It remains to be seen if earnings can exceed expectations embedded in current valuations.
AlphaProfit's sector selection process favors selected consumer discretionary groups as surrogate ways to play the housing cycle.
This process also rates financials as a frontrunner for best performing investments in 2013.
Financial firms have several factors changing for the better. Loan demand, hitherto hemmed by the weak economy, is increasing as appetite for commercial, industrial, and real estate loans is perking up.
Second, margins enjoyed by financial firms stand to expand if long-term interest rates edge higher while short-term rates remain anchored by the Fed.
Lastly, financial firm earnings stand to receive a boost from further reduction in loan loss reserves as asset quality improves.
While a diversified financial fund like Fidelity Select Financial Services (FIDSX) can deliver solid returns, investors looking at specific industries in the financial sector stand to reap larger rewards at lower risk.
Another group that is well-worth watching is this year's laggard, energy. A broad-based energy fund like Fidelity Select Energy (FSENX) can deliver outsized returns in 2013, particularly if China's economy reaccelerates and revs up demand for raw materials.
To get AlphaProfit's current recommendations of best Fidelity funds and AlphaProfit's Fidelity Core and Fidelity Focus model portfolios, subscribe to AlphaProfit Premium Service now.
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