Each year, best Fidelity Select funds on average beat the S&P 500 by 43%, that is 4300 basis points. Fidelity Select Semiconductors leads the performance table in 2019 with a year-to-date return of 64%. This compares with a gain of 31% for the Fidelity 500 Index Fund. Which funds are likely to take honors as best Fidelity Select Funds in 2020?
What a difference a year makes!
The year 2018 was one when ‘nothing worked’ as every major type of investment or asset class fared poorly.
Fast forward one year.
The year 2019 is shaping up to become one when ‘everything worked’.
U. S. stocks large & small, U. S. bonds, international stocks, and commodities are all up in 2019.
With just a few more trading days to go, Fidelity 500 Index Fund (FXAIX) that tracks the S&P 500 index ($SPX) is up 31% for the year.
Best Fidelity Select Funds of 2019
As macroeconomic fears eased over the course of 2019, investors have favored stocks in information technology and its subgroups.
Four of the top five performers among Fidelity Select funds are information technology funds.
Fidelity Select Semiconductors (FSELX) with a year-to-date return of 64% leads the performance table for Fidelity sector funds.
Fidelity Select Technology (FSPTX) follows with a 50% gain.
Fidelity Select IT Services (FBSOX) and Fidelity Select Software & IT Services (FSCSX) claim the third and fifth spots, respectively.
Fidelity Select Construction & Housing (FSHOX) is the only fund outside of the information technology sector to make it to the top five.
As of December 20, 42 of the 43 Fidelity sector funds in operation for all of 2019 are in the black.
Commodity-oriented funds, which clustered the bottom of the 2017 and 2018 performance tables, are there again.
The year’s worst performer Fidelity Select Energy Service (FSESX) is the sole loser with a 1% decline.
Fidelity Select Natural Gas (FSNGX) follows with a gain of just 1%.
Fidelity Select Communications Equipment (FSDCX) is one fund that has not joined the broad information technology rally. It finds itself in third place from the bottom with a modest 6% gain.
Fidelity Select Funds: The Market Milieu in 2020
Stocks are ending 2019 on a high note.
On December 20, the S&P 500 set a new all-time high of 3,225.65.
Investor confidence is high.
Yet, stocks have not had a smooth ride through 2019.
Until a month ago, investors constantly fretted over the possibility of difficult U. S.-China trade negotiations impeding global growth.
These concerns eased after the U. S. and China announced in December they have agreed to a ‘phase one’ trade deal in principle and the agreement will be signed in January 2020.
As for the U. S. economy, the job market is doing well. Inflation is not an issue and economic growth is adequate.
In this milieu, the Federal Reserve has indicated it does not expect any changes to interest rate policy through at least 2020. Chairman Powell has stated the Fed needs to see a persistent rise in inflation before hiking rates again.
So, what is in store for 2020? Will stock prices continue to rise or reverse? Which types of stocks can fare better?
Investors currently expect all events and variables to resolve favorably.
This includes U. S. and China inking the trade agreement in January, economy continuing to grow uninterrupted in 2020, low unemployment and inflation allowing the Federal Reserve to maintain current interest rates through 2020, and President Trump getting reelected.
Stocks appear fully priced as they enter 2020 in this milieu of unbridled optimism. The forward price/earnings ratio, commonly used as a metric to value stocks, has risen to 18.0, exceeding this metric’s 5-year-and 10-year averages of 16.6 and 14.9, respectively.
Negative surprises such as rising inflation, earnings growth falling short of the expected 9.6% in 2020, or a progressive Democrat like Sen. Sanders or Sen. Warren becoming a serious challenger to President Trump will likely cause stocks to tumble.
As such, it is conceivable for stock prices to maintain their uptrend as long as the future aligns with investors’ current expectations and reverse when one of the negative surprises materialize.
Regarding the types of stocks likely to fare better … growth stocks have outperformed value stocks for three straight years since 2016. Many growth stocks now appear richly priced in relation to their growth prospects.
In recent months, value stocks are showing some strength as investors hunt for bargains.
While it is too early to make the call on value stocks leading the way in 2020, they at least stand a good chance of keeping pace with growth stocks next year.
As such, it is prudent to have a combination of growth and value stocks rather than go with one or the other.
Best Sectors for 2020
AlphaProfit uses its multi-dimensional sector evaluation and selection process to select industries and sectors with superior return potential. These selections help subscribers to protect and grow their assets with low volatility.
AlphaProfit’s sector evaluation & selection process currently favors investments in the growth-oriented information technology sector and the value-oriented financial sector for 2020.
Information technology: Adoption of new technologies such as artificial intelligence, big data, cloud computing, driverless cars, and 5G wireless networks is likely to continue in 2020. Companies providing such technologies and those involved in building a fast, secure, and reliable infrastructure to enable these technologies should benefit. Offsetting these positives, valuation metrics for information technology stocks are stretched after their strong gains in 2019. According to Ned Davis Research, the average information technology stock trades at a forward P/E ratio of 22, the highest in 15 years. As such, one must be selective on information technology investments in 2020.
Financials: For most of 2019, the inversion in the yield curve (i.e., short-term interest rates exceeding long-term interest rates) that crimped lending margins weighed on financial stocks. The yield curve returned to its normal upward slope in the fourth quarter as economic worries eased. Financial firms should enjoy stronger lending margins since long-term interest rates are now above short-term interest rates. Further, improvement in business confidence augurs well for loan growth. Financial shares are attractively valued in this milieu; the average financial services stock trades at a modest 12.7-times 2019 EPS forecast.
Best Fidelity Select Funds for 2020
Investors can invest in Fidelity Select funds with latitude to invest across the entire sector such as Fidelity Select Financial Services (FIDSX) 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 and information technology sectors.
On Tuesday, 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.