How We Use Fidelity Sector Funds

Sector funds can be volatile investment vehicles particularly when viewed in isolation. To maximize reward and minimize risk, we take a portfolio approach to investing with sector funds.

We construct two actionable model portfolios using Fidelity Sector funds for subscribers to track: AlphaProfit Core™ Portfolio and AlphaProfit Focus™ Portfolio.
AlphaProfit Core is a diversified portfolio constructed using Fidelity sector funds. The Core model portfolio takes a targeted approach to diversification by including a set of industry groups that are expected to outperform the broad equity market. To achieve adequate diversification, Fidelity Index funds may be included in the Core model portfolio based on market conditions.
AlphaProfit Focus is a concentrated portfolio constructed using Fidelity sector funds. The Focus model portfolio pursues aggressive growth by typically including 2 to 4 Fidelity sector funds. Fidelity Index funds are not included in the Focus model portfolio.

Maximize Reward by Choosing Fidelity Sector Funds with High Expected Sector-Specific Returns

Stock prices of companies within a sector or industry move together due to causal factors. Examples of such causal factors include:

• Business cycle dynamics
• Key sector or industry earnings' driver trend
• Demographic or consumer demand changes
• New technology or product introduction
• Government policies or regulatory changes
• International events

Since sector funds focus their investments within a specific sector or industry, their returns are strongly dependent on the impact of sector-specific factors. We seek to maximize our return by selecting Fidelity sector funds that have high expected sector-specific returns. In Capital Asset Pricing Model or CAPM terms, we seek Fidelity sector funds with high expected values of future CAPM Alpha. We use the ValuM™ Investment Process to analyze and identify Fidelity sector funds for inclusion in our model portfolios.

Minimize Risk by Choosing a Group of Fidelity Sector Funds

Sector funds concentrate their investments in a specific sector of the economy while diversifying the fund's assets within that sector. The causal factors that drive sector-specific returns lead to sector-specific risks. We endeavor to diversify sector-specific risks by choosing a group of Fidelity Sector funds to invest in.

See Why Fidelity Mutual funds

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