Fidelity Select Funds: Best, Worst, and 2014 Forecast
Sam Subramanian PhD, MBA
Year 2013 is turning out to be good year for stocks. They are on track to score their largest annual gain since 1997. With just a few more trading days left, Fidelity Spartan 500 Index Fund (FUSEX) that tracks the S&P 500 index ($SPX) is up 29.5% for the year.
Forty-one of the 42 Fidelity sector funds are in the black in 2013.
Fidelity Select Biotechnology (FBIOX) with a year-to-date return of 59.6% leads the performance table for Fidelity sector funds as it did in 2012 and 2011.
Fidelity Select Health Care (FSPHX) and Fidelity Select Air Transportation (FSAIX) follow with returns of 52.4% and 47.7%, respectively.
Fidelity Select Gold (FSAGX) with a staggering 52.4% loss is buried at the bottom of 2013's performance table. The gold fund looks set to end in this unenviable position for a second straight year.
Fidelity Real Estate (FRESX) is the only other Fidelity sector fund losing in 2013, a year that has been hard on income investments in general.
AlphaProfit's Aggressive Growth (Fidelity Focus) and Capital Appreciation (Fidelity Core) model portfolios have benefited by overweighting leading investments in health care and financial sectors in 2013.
As of November 30, the Fidelity Focus and Core model portfolios are up 43.7% and 41.2%, respectively and outperforming the 29.1% advance for the S&P 500.
Fidelity Select Biotechnology was included in AlphaProfit's model portfolios in 2013. AlphaProfit's proven process selected the year's best performing Fidelity Select Fund in 2012, 2011, 2010, 2009, 2008, 2005, and 2002 as well.
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AlphaProfit's multidimensional sector evaluation and selection process has consistently selected the best Fidelity Select funds to enable the AlphaProfit Premium Service and model portfolios to bag Hulbert Financial Digest's #1 rank 12 times. See: Fidelity Select Funds: Choose the Best Fidelity Sector Fund Consistently
A dollar invested in AlphaProfit's Fidelity Focus and Fidelity Core model portfolios is worth $50.60 and $25.11, respectively.
This implies annualized returns of 21.1% and 17.0%, respectively.
Comparable investments in the Dow Jones Wilshire 5000 ($DWCF) and S&P 500 benchmarks are worth $6.42 and $6.25, respectively implying annualized returns of 9.5% and 9.3%, respectively.
Performance of Fidelity Focus and Fidelity Core mutual fund model portfolios as of June 30, 2014.
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2014 Stock Market Forecast
Stock prices are overdue for a 10%+ correction in 2014, after their extended advance in 2013.
Investors should, however, have ample opportunities to make money in 2014.
In years following those with a 20% gain or more, the S&P 500 has on average risen 10% with gains recorded in 78% of such years.
Stock prices can advance in 2014 inline with history particularly if stimulus is trimmed gradually and the economy transitions from fragile expansion to sustainable growth.
Growth expectations and valuation metrics are both higher than they were at the start of 2013. Analysts' currently expect S&P 500 companies to more than double their EPS growth in 2014 to 10.7% from 4.6% likely in 2013. The forward P/E on stocks has risen 20% in 2013 to 14.8.
The combination of higher growth expectations and valuation can make stocks vulnerable to disappointments and the advance in stock prices more selective in 2014, i.e., narrower market breadth.
Best Fidelity Select Funds: 2014 Forecast
AlphaProfit's sector selection process rates the consumer discretionary sector among frontrunners for best performing investments in 2014.
Firms in the consumer discretionary sector have several factors going for them.
First, jobs are being created and household net worth is increasing from rising home & stock prices.
Second, the decline in commodity prices through 2013 has led to an increase in consumer's disposable income.
Last, banks are easing lending standards. They are willing to extend credit to consumers who have reduced debt.
In this milieu, a sector fund like Fidelity Select Consumer Discretionary (FSCPX) can deliver good gains. However, the likelihood of a more selective advance in 2014 should help specific industries in the consumer discretionary sector provide higher returns at lower volatility.
Elsewhere, natural resources and commodities have been in bear market for three straight years and underperformed stocks. This trend has the potential to reverse at some point in 2014 particularly if growth ticks up in emerging markets including China.
As such, it should be worthwhile to keep an eye on Fidelity Select Natural Resources (FNARX) for possible leadership in 2014.
Against this backdrop, judicious industry selection and timely rotation would be required for investment success in 2014.
To get timely 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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