Fidelity Select Medical Technology and Devices leads the performance table in 2018 with a year-to-date return of 10%. This compares with a decline of 46% for the year’s worst performer, Fidelity Select Energy Service. Which Fidelity Select Fund will be 2019’s best performer?
The year 2018 is being called the ‘year when nothing worked’.
For the first time in decades, every major type of investment or asset class has fared poorly.
U. S. stocks large & small, U. S. bonds, international stocks, and commodities are down for the year.
In this sense, 2018 is proving to be worse than 2008 when U. S. Treasury bonds surged as risky assets tanked.
With just a few more trading days to go, Fidelity 500 Index Fund (FXAIX) that tracks the S&P 500 index ($SPX) is down 8% for the year.
Defensive sectors such as health care and utilities are in favor as investors have valued the relative stability of such businesses in a challenging economic milieu.
Fidelity Select Medical Technology and Devices (FSMEX) with a year-to-date return of 10% leads the performance table for Fidelity sector funds.
Fidelity Select Utilities (FSUTX) is close behind to take second place.
Other funds from the health care and utilities sectors round out the top 5.
Fidelity Select Health Care Services (FSHCX), Fidelity Telecom and Utilities (FIUIX), and Fidelity Select Pharmaceuticals (FPHAX) claim the third through fifth spots of the performance table with returns ranging between 2% and 6%.
As of December 21, only 6 of the 41 Fidelity sector funds are in the black this year.
Commodity-oriented funds, which clustered the bottom of the 2017 performance table, are there again.
Fidelity Select Energy Service (FSESX) is the year’s worst performer, losing 46%. Fidelity Select Materials (FSDPX) and Fidelity Select Energy (FSENX) follow at some distance with declines of 27% each.
Fidelity Select Funds: The Market Milieu in 2019
As the year 2018 draws to close, investor sentiment is at odds with economic measures.
Employment data and leading economic indicators could not be stronger.
The jobless rate stands at 3.7%, a 49-year low.
On December 20, the Conference Board called for U. S. gross domestic product to grow at a 2.8% annualized rate in early 2019 after its Leading Economic Index rose in November.
Why then are investors anxious?
Investors worry that a confluence of factors is dampening U. S. economic growth.
These factors include slowing economic growth in China & Europe and difficult trade negotiations between U. S. and China.
In this milieu, the Federal Reserve is tightening financial conditions and putting more strain on the U. S. economy.
The budget discord between President Trump and Democrats that has resulted in a partial government shutdown is certainly not helping matters.
Recent commentaries from global economic bellwethers FedEx (FDX) and Micron Technology (MU) bear out investors’ fears.
Last week, FedEx cut its 2019 profit forecast stating, ‘Internationally, economic strength seen earlier this year has given way to a slowdown. The peak for global economic growth now appears to be behind us.
Micron Technology cut its current quarter revenue and EPS guidance to imply year-over-year declines of 18% and 38%, respectively. The semiconductor chipmaker attributed the lower forecast to weakening demand for high-end smartphones.
So, who will prove right? Investors or the economic indicators and the Federal Reserve.
Investors are more likely to be proven right. The economy is slowing.
Although the Fed may be late in acting, it will correct its course in 2019.
Investors relying on relative strength or momentum run the risk of investing solely in defensive sectors. This approach can expose investors to overvalued sectors. Such sectors can perform poorly when current worries dissipate.
In 2019, a combination of offense and defense is likely to do better than just having a defensive lineup.
As elaborated in US Stock Market Forecast for 2019, AlphaProfit sees the U. S. stock market’s likely outcome in 2019 to range between a solid single-digit gain and a modest double-digit decline.
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.
True to the assessment of mixing defensive investments with offensive ones, AlphaProfit’s sector evaluation & selection process currently favors investments in the health care and information technology sectors for 2019.
Health Care: The gridlock in Congress created by the mid-term elections is a positive for the health care stocks. Large-scale changes to the existing system such as repealing Obamacare are unlikely. That said, bipartisan push for lowering drug prices remains a risk. Health care companies continue to benefit from steady increases in demand from an aging population and rising living standards. According to BCA Research, the health care sector has also outperformed the broad market during previous periods of rising interest rates.
Information technology: The IT sector underwent substantial changes in September with Internet & entertainment software companies moving to the new Communication Services sector. The IT sector now has a value tilt with constituents having higher dividend yields and lower price-to-earnings ratios. Trends such as digitization and automation are unlikely to be materially impacted by slowing global growth. That said, investors need to avoid specific industries in the IT sector that can be vulnerable to a global slowdown.
Best Fidelity Select Funds for 2019
Investors can invest in Fidelity Select funds with latitude to invest across the entire sector such as Fidelity Select Health Care (FSPHX) 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 health care and information technology sectors..
On Monday, December 31, 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.