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Sam Subramanian

Fidelity Select Funds: Best, Worst, and 2016 Forecast

Sam Subramanian PhD, MBA

Year 2015 is proving to be a tepid one for stocks.

A spirited Santa rally has merely served to help stocks cut losses suffered earlier in December.

The S&P 500 is down 0.8% this December, a seasonally strong month.

With this month's loss coming on the heels of a modest gain scored in the first 11 months, the S&P 500 is up just 2.2% for the year.

Twenty-one of the 41 Fidelity sector funds are in the black in 2015.

Fidelity Select Retailing (FSRPX) with a year-to-date gain of 18.6% leads the pack.

Fidelity Select IT Services (FBSOX), Fidelity Select Biotechnology (FBIOX), and Fidelity Select Software & Computer Services (FSCSX) follow with year-to-date returns of 14.4%, 14.2%, and 10.9%, respectively.

For the second straight year, commodity-oriented funds crowd the bottom of annual performance table. Fidelity Select Natural Gas (FSNGX) is entrenched at the bottom of the 2015 performance table with a 35.9% loss.

Fidelity Select Energy Services (FSESX) is next worst having declined 24.5%. Fidelity Select Natural Resources (FNARX), Fidelity Select Energy (FSENX), and Fidelity Select Gold (FSAGX) occupy the bottom with double-digit losses.

In this milieu, AlphaProfit subscribers have reaped rewards by investing in many of the year's chart toppers including Fidelity Select Retailing, Fidelity Select IT Services, and Fidelity Select Biotechnology.

For the three-year period from December 31, 2012 to December 24, 2015, AlphaProfit's Capital Appreciation (Fidelity Core) and Aggressive Growth (Fidelity Focus) model portfolios are up 64.4% and 55.3%, respectively. The Fidelity Core and Focus model portfolios have both outperformed the 53.2% gain of the S&P 500 during this three-year period.

AlphaProfit's multidimensional sector evaluation and selection process has consistently selected top Fidelity Select funds to enable the AlphaProfit Premium Service and model portfolios to bag Hulbert Financial Digest's #1 rank multiple times. See: Fidelity Select Funds: Choose the Best Fidelity Sector Fund Consistently

Performance quotations from investors using fidelity mutual funds model portfolios
Fidelity Select Funds: Returns of Best and Worst Funds

Fidelity Select Retailing (FSRPX) was included in AlphaProfit's model portfolios in 2015. AlphaProfit's proven process selected the year's best performing Fidelity Select Fund in 2014, 2013, 2012, 2011, 2010, 2009, 2008, and 2005 as well.

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A dollar invested in AlphaProfit's Fidelity Focus and Fidelity Core model portfolios in 1994 is worth $48.15 and $25.73, respectively. This implies annualized returns of 19.3% and 15.9%, respectively.

Comparable investment in the S&P 500 benchmark is worth $6.75, implying an annualized return of 9.1%.

2016 Stock Market Forecast

With Federal Reserve interest-rate policy makers preparing investors for higher rates through 2015, concerns of the first interest rate hike since 2006 whipsawed U. S. stocks through the year.

On December 16, the Fed ended seven years of near-zero interest rates by raising the federal funds rate's target range to 0.25-0.50% from 0.00-0.25%.

The central bank has now promised to raise interest rates at a gradual pace subject to economic data.

With the Fed looking to drain liquidity at a measured rate in 2016, economic growth and corporate earnings would likely bear the burden of driving stock prices higher next year.

So, what is in store for economic growth and corporate earnings?

Helped by improvement in the job market, stable-to-rising home prices, and falling oil prices, the finances of U. S. consumers have improved in 2015. Meanwhile, the stronger U. S. dollar is hurting U. S. exports of manufactured goods. It is also crimping earnings of multinational companies due to unfavorable currency conversion effects.

The Conference Board's Leading Economic Index for the U. S. rose 0.4% in November suggesting a positive economic outlook for the fourth quarter of 2015 and early part of 2016.

Against the backdrop of rising interest rates, the U. S. economy's annualized growth rate is likely to range between 1.5% and 3.0% in the fourth quarter of 2015 and whole of 2016. This compares with rates of 3.9% and 2.0% recorded in second and third quarters of 2015, respectively.

As for corporate profits, FactSet data show analysts collectively expect aggregate S&P 500 earnings to decline 4.9% year-over-year in the fourth quarter. If this forecast turns true, this would mark the third straight quarter of year-over-year decline in profits.

Analysts expect year-over-year profit comparisons to turn positive in the first quarter of 2016. They expect full-year profits in 2016 to rise 7.5% from the 2015 tally.

In the absence of the Fed increasing liquidity, stocks would likely find the going tough if year-over-year corporate profit comparisons continue to remain negative into 2016.

Stocks in aggregate can however fare well in 2016 if year-over-year profit comparisons turn positive soon and grow meaningfully next year.

The combination of an expanding U. S. economy and inconsistently rising corporate profits is likely to lead to a sizeable divergence in returns across sectors and provide many opportunities for sector investors.

Best Fidelity Select Funds: 2016 Forecast

Looking ahead to next year, AlphaProfit's sector selection process rates sectors linked to consumer spending and information technology among frontrunners for best performing investments.

Broad sector funds like Fidelity Select Consumer Discretionary (FSCPX) and Fidelity Select Technology (FSPTX) can deliver decent gains.

However, specific industries in the consumer discretionary and information technology sectors can provide higher returns at lower volatility.

Investors have generally shunned interest-rate sensitive investments particularly in the latter part of 2015 as the Fed mulled raising short-term interest rates. This has created opportunities in specific interest-rate sensitive groups with favorable fundamentals. Investments in such rate sensitive groups can come in handy, particularly if U. S. economic growth falters and restrains the Fed's interest rate increases.

The relentless rise in the U. S. dollar has taken a toll on natural resource stocks during the past two years.

While it is too early to call the bottom in commodity-related stocks, the odds of natural resource stocks providing a tradable rally in 2016 would increase if growth ticks up in resource importing regions of the world or the dollar rally loses steam.

As such, it is worthwhile keeping an eye on Fidelity Select Energy and Fidelity Select Natural Resources.

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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Sign up for AlphaProfit's FREE Fidelity newsletter MoneyMatters and get two special reports:
Five Smart Ways of Using Fidelity Select Funds and Avoid Three Common Mistakes ETF Investors Make

Related Links:
Fidelity Funds Model Portfolios
Best Fund Recommendations from Fidelity FundsNetwork
Fidelity Mutual Funds Model Portfolios Performance


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About AlphaProfit MoneyMatters and AlphaProfit
AlphaProfit MoneyMatters is a free e-letter distributed to registered users of AlphaProfit's website. The e-letter analyzes the economy, markets, and sectors and provides money-making insights on stocks, exchange-traded funds, and mutual funds. AlphaProfit MoneyMatters is edited by Dr. Sam Subramanian acclaimed for his financial acumen and analytical skills.

AlphaProfit Investments, LLC is an independent investment research firm based in Sugar Land, TX. AlphaProfit publishes the AlphaProfit Sector Investor's Newsletter, edited by Dr. Sam Subramanian. Leveraging sector funds, the Newsletter provides high-performance model portfolios with Fidelity funds and exchange-traded funds. It also includes actionable stock recommendations. This newsletter features among MarketWatch's top 10 investment newsletters and has won the coveted #1 rank from Hulbert Financial several times.

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