Boosting the Performance of Your No Load Mutual Funds Portfolio
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Fidelity No Load Mutual Funds: Supercharge Your Portfolio's Returns
Investors who exclusively use broadly diversified, no load mutual funds for their stock investments often lose out on opportunities to increase the reward potential of their portfolios. This article looks at two methods investors may use to enhance the performance of their portfolio of diversifed, no load mutual funds.
Diversify, diversify, diversify!
All too often, investors exclusively use broadly diversified, no load mutual funds for their stock investments. Fidelity Magellan Fund (Nasdaq: FMAGX) and Fidelity Contrafund Fund (Nasdaq: FCNTX) are examples of popular Fidelity funds investors commonly use. By following this approach, investors often miss out on opportunities to enhance the reward potential of their portfolios.
In a related article, we have looked at how investors can use sector funds to construct a diversified, no load mutual fund portfolio. In this article, we look at how investors can use sector funds to enhance the performance of their portfolio of diversified, no load mutual funds. Although Fidelity funds are presented as examples, the concepts outlined here can be implemented using sector funds managed by other institutions such as Vanguard or T. Rowe Price.
Sector funds confine their investments to a particular sector of the economy. Fidelity funds managed under the Select Portfolios® are sector funds. For example,
Fidelity Select Energy (Nasdaq: FSENX) is a no load mutual fund that focuses its investments on various segments of the energy industry such as integrated
oil companies, oil and gas exploration and production companies, and oil field service companies.
Focus on sectors with growth opportunities
An investor having a portfolio of diversified, no load mutual funds may commit a portion of her assets to sector funds that focus on areas having significant growth opportunities, e.g., electronics or software. Some financial professionals call this the 'core and satellite' portfolio approach where the diversified, no load mutual fund is the core and the sector fund is the satellite holding. Investments in Fidelity funds like Fidelity Select Electronics (Nasdaq: FSELX) or Fidelity Select Software and Computer Services (Nasdaq: FSCSX) can enable the investor add emphasis on growth sectors such as electronics and software, respectively.
Take a proactive approach to sector investing through sector rotation
Like in the previous case, an investor having a portfolio of diversified, no load
mutual funds commits a portion of her assets to sector funds. With this approach, the investor however seeks to maximize the potential of the portion of assets committed to sector funds by
periodically switching assets into sectors with higher expected returns.
The Impact on Your Portfolio
Strong performance from a portion of assets committed to sector funds can materially enhance the return of your portfolio of
no load mutual funds. Fidelity funds such as Select Electronics and Select Software and Computer Services sport 10 year average annual returns of close to 18%; this is
nearly twice the 10 year average annual return of 9.4% for the Fidelity Magellan Fund. Using tactical, infrequent rotation of assets among sectors,
the AlphaProfit's Focus™ model portfolio has increased at an average annual rate of 34.4% since 1993.
Key Points to Remember
1. Investors who exclusively use broadly diversified, no load mutual funds for their stock investments often miss out on opportunities to enhance the return of
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