Fidelity Select Funds: Best Fidelity Select Funds for 2018
Sam Subramanian PhD, MBA
Fidelity Select Technology leads the performance table in 2017 with a year-to-date return of 51%. This compares with a decline of 18% for the year's worst performer, Fidelity Select Natural Gas. Which Fidelity Select Fund will be 2018's best performer?
The year 2017 is ending on a strong note.
Starting the year below 19,800, the Dow Jones Industrial Average has added nearly 5,000 points this year.
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 22% for the year.
Technology stocks have been major beneficiaries of strong growth in foreign markets and a declining dollar.
Fidelity Select Technology (FSPTX) with a year-to-date return of 51% leads the performance table for Fidelity sector funds.
Other funds from the technology sector follow.
Fidelity Select Software & IT Services (FSCSX), Fidelity Select Semiconductors (FSELX), Fidelity Select Computers (FDCPX), and Fidelity Select IT Services (FBSOX) claim the second through fifth spots of the performance table with returns ranging between 34% and 39%.
Other sectors such as consumer cyclicals, health care, and industrials too have prospered in 2017.
With the result, 37 of the 41 Fidelity sector funds are in the black this year.
Commodity-oriented funds, which claimed the top spots of the 2016 performance table, now scrape the bottom.
Fidelity Select Natural Gas (FSNGX) is the year's worst performer, losing 18%. Fidelity Select Energy Services (FSESX) follows with a 16% decline.
Fidelity Select Funds: The Market Milieu in 2018
The U. S. economy and major economies around the world are expanding at a healthy rate.
The Commerce Department recently reported U. S. gross domestic product expanded at a 3.2% annual rate in the third quarter of 2017.
There is little evidence for a recession in the next six months.
As for U. S. stocks, they are in the ninth year of the bull market and appear fully valued.
According to FactSet, the 12-month forward price-to-earnings ratio for the S&P 500 stocks currently stands at 18.3. The P/E ratio has averaged 15.8 and 14.2 over the past 5 years and 10 years, respectively.
Analysts expect S&P 500 companies to grow their earnings by 11.8% in 2018, helped by a lower corporate tax rate, continued synchronized global growth, and prospects for continued deregulation.
See US Stock Market Forecast for 2018.
The reaction of stock prices to third-quarter earnings results suggests that the bull market is in its later stages of the cycle.
Companies missing analysts' earnings estimates were punished more than average while companies beating estimates were barely rewarded.
With the unemployment rate at a post-2001 low of 4.1% and major global economies forecasted to grow in 2018, inflation driven by wage growth or rising commodity prices is a risk.
AlphaProfit's optimistic case scenario projects low double-digit returns for the broad US stock market in 2018.
However, investors focusing on specific industries and sectors can earn superior returns in this milieu.
Fidelity Select Funds: Best Sectors for 2018
AlphaProfit uses its multidimensional sector evaluation and selection process to select industries and sectors with superior return potential. The selections help subscribers to protect and grow their assets with low volatility.
See Fidelity Select Funds: Choose the Best Fidelity Sector Fund Consistently.
AlphaProfit's sector evaluation & selection process currently favors investments in the financial services, information technology, and materials sectors for 2018.
Financial services: Following the signing of the Tax Cuts and Jobs Act into law, financial service firms are expected to be major beneficiaries of lower corporate tax rates. They should also profit from higher interest rates and relaxation in regulations expected next year. A growing bottom line should enable financial service firms to buy back shares and raise dividends.
Information technology: Information technology companies stand to benefit from global economic growth. Additionally, they should benefit from lower taxes on repatriation of cash they have stashed overseas. Secular growth in demand for products is being driven by innovations such as virtual/augmented reality, wearables, Internet of Things, the blockchain, and autonomous vehicles to name just a few.
Materials: Companies in the materials sector have everything going for them. They are typically companies paying a high tax rate. As such, lower corporate tax rates in 2018 should help them save a tidy sum. Stronger global growth also translates into stronger demand for commodities from which materials companies stand to prosper. Lastly, materials stocks have the added advantage of serving as a hedge against inflation.
Best Fidelity Select Funds for 2018
Investors can invest in Fidelity Select funds with latitude to invest across the entire sector such as Fidelity Select Financial Services (FIDSX), Fidelity Select Materials (FSDPX), and Fidelity Select Technology (FSPTX) to profit from the above trends.
However, investors can earn higher returns at lower volatility by targeting specific industries in the financial services, information technology, and materials sectors.
On Friday, December 29, AlphaProfit will reconstitute its Fidelity Core and Fidelity Focus model portfolios with a mix of Fidelity Select funds to help Premium Service subscribers protect and grow their assets.
To get timely recommendations of best Fidelity funds in AlphaProfit's Fidelity Core and Fidelity Focus model portfolios, subscribe to AlphaProfit Premium Service now.
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