2015 offers a world of investment opportunity, so long as you know where to look, what to invest in, when to get out of certain areas, and when to double up on others.
That’s where I come in.
About Jim Lowell
Jim Lowell is the editor of Fidelity Investor, the private and independent advisory published for individual investors seeking superior performance from their Fidelity investments.
Jim’s subscribers are known as “Fidelity’s Fortunate Few.” The fund selections they get directly from Jim double and in many cases triple their returns. His strategies for investment income have boosted members’ annual income two-fold. Jim’s a bona-fide Fidelity genius.
He’s also a real-life Fidelity fanatic. He was born in Boston and he still lives there. He holds Master’s degrees from both Harvard University and Trinity College. He used to work at Fidelity, where he helped launch Fidelity’s most prominent publications, Fidelity Focus and Investment Vision, which turned into Worth magazine.
You can’t read an article about Fidelity in any major publication — The Wall Street Journal, The New York Times, Barron’s, Forbes, Fortune, you name it — without seeing at least one quote from Jim Lowell. In fact, the independent Hulbert Financial Digest recently named Fidelity Investor to its 2014 Newsletter Honor Roll.
I’m Jim Lowell. I’ll tell you what Fidelity won’t. Think of me as your own personal Fidelity inside man, your investment watchdog. My path to becoming a “Fidelity Insider” started years ago when I worked as a senior financial reporter for Fidelity Investments. Of course, I’m entirely independent of Fidelity Investments now and totally free to tell you what they won’t.
I know more than a thing or two about helping Fidelity investors navigate all of the twists and turns in order to safeguard their assets and deliver real gains.
Everyone continues to be nervous about market highs and government lows. I share those same concerns but worry less than those who don’t know how to…
- buy the right managers for the right times,
- deliver asset allocation advice that helps buffer the blows,
- provide enhanced income solutions and
- who don’t have access to Fidelity’s best and brightest managers.
For 2015, my goal is the same as it’s been for 20-plus years. Buy the manager not the fund. Focus on risk as much as return. Cover the globe but never lose sight of the U.S. economy and consumer. Provide low-cost solutions for high income.
Here are 10 funds that meet my goals…
Fidelity’s 10 Best Funds for 2015
Low Priced Stock (FLPSX); Manager, Joel Tillinghast
Still inimitable, still head and shoulders above even the best crop of giants you can find in the space, lead manager Joel Tillinghast is about as far a cry from leveraged stocks as you can get.
Joel invests in low priced stocks, which are stocks $35 or less. While that sounds like a gimmick, it’s the secret to this fund’s genius, and was Joel’s brainchild, making him of one of the best managers of any generation. It can lead to a small/mid cap tilt. But it can also lean toward even mega-caps in ultra-bear markets (like the one we got in 2008). It began trading in December 1989 and has a market value of over $30 billion.
Joel is a stock picker’s stock picker; if he’s around the water cooler, other managers are keen to hear what he has to say. While unsung by the media, he is a manager that compares with Peter Lynch, his mentor while Joel was learning the trade. His stealth advantage: he’s always been a global investor. I continue to think the best way to pursue foreign stock opportunities is through managers with longstanding expertise in the foreign stock arena as part and parcel of the global funds, such as Joel Tillinghast and Low Priced Stock.
Select Healthcare (FSPHX) ; Manager, Eddie Yoon
Eddie Yoon invests in companies involved in the design, production, or sale of health care products and services, including, but not limited to: pharmaceutical, diagnostic, administrative, medical supply, and biotechnology companies. It began trading in July 1981 and has a market value of almost $9 billion.
I like Select Healthcare for reasons that follow this refrain: healthcare provides necessary goods and services for huge, worldwide demographics that are aging and whose collective demand isn’t slowing.
Eddie Yoon invests with an eye on the necessary demographic trends and stories of aging boomers needing a youth-inducing crutch as well as on the emerging market theme of new consumers demanding better healthcare.
Mega Cap Stock (FGRTX); Manager, Matt Fruhan
There are a lot of funds out there that sound like they’re buying the big boys, but few actually do just that. Not so here. Manager Matthew Fruhan invests more than 70% of the fund in companies with mega cap capitalizations of the battleship balance sheet variety, Texas-sized dividend producing, more cash than they can count let alone spend, emerging market capable kind. You could contrast this with Vanguard Dividend Growth, which invests about 40% of its assets in mega cap companies. Fruhan can reach across the pond, but prefers U.S. battleships.
Matthew Fruhan invests in companies with market caps similar to those found in the S&P 100 Index. It began trading in December 1998 and has a market value of over $3 billion.
Blue Chip Growth (FBGRX); Manager, Sonu Kalra
Manager Sonu Kalra invests in blue chip companies that he believes have above-average potential for earnings growth. Blue chips are defined as companies found in the S&P 500 or Dow, or companies having at least $1 billion in total assets if not included in either index, so there’s mid-cap leeway inbuilt into this fund’s parameters. The fund began trading in December 1987 and has a market value of over $18 billion.
Battleship balance sheets are the best way to ply 2015’s charted and uncharted waters; you never know when the seas will turn turbulent, but you can rest assured that when they do, bigger is better.
Stock Selector Small Cap (FDSCX); Team Managed
This fund normally invests at least 80% of assets in securities of companies with small market capitalizations (companies with market capitalizations similar to companies in the Russell 2000 Index or the S&P SmallCap 600). Investing in either “growth” stocks or “value” stocks or both. Normally investing primarily in common stocks.
How does Fidelity cover the small cap territory that is largely un- or under-analyzed? Simple, they build a team of globetrotters, back them with anything (from staff to weather reporters, not just weather reports), and let them grow green shoots where others fear to tread or get trampled on.
Team managed by Eirene Kontopoulos (since 4/2/2012), Morgen Peck (since 3/1/2011), Rayna Lesser Hannaway (since 11/1/2009), Shadman Riaz (since 11/1/2009), Patrick Venanzi (since 11/1/2009), and Richard Thompson (since 10/31/2005)
OTC (FOCPX); Manager, Gavin Baker
Manager Gavin Baker invests in stocks that are traded on the NASDAQ over-the-counter market, which results in some very big guns complemented by a mid-cap tilt. It began trading in December 1984 and has a market value of over $11 billion.
Technology is ubiquitous. It is the oxygen that brings everything to life, from your coffee machine, to your smart phone, to your TV, to your car, to your home, to your doctor, to your… you get my point. You’d have to put something awful funny in today’s technology pipe to not see it as clearly a growth opportunity. Buy OTC and plug into long-term gains.
International Growth (FIGFX); Manager, Jed Weiss
Jed Weiss invests in companies from around the globe that are believed to have above average potential for growth. It began trading in November 2007 and has a market value of over $900 million. Jed looks for multiyear structural growth stories and high barriers to entry businesses at attractive valuations on his earnings forecast.
Japan Smaller Co (FJSCX); Manager, David Jenkins
Manager David Jenkins invests in this fund’s clever namesake smaller-cap Japanese companies. The key to understanding this fund’s focus and scope comes down to understanding the “er”. The market caps are similar to those of companies found in the Russell/Nomura Mid-Small Cap Index; a lot of room to maneuver toward more smaller-cap unproven growth plays or toward more established, real product, real earnings, real market share, real management mid-caps.
Japan? Am I for real? Yes and yes. While everyone bailed on Japan in recent years, we went the other way; took the road less taken and arrived at a 55%-plus profit destination. Interesting note: the last time I was this bullish on Japan Smaller Companies was back in 2008. The following year this fund surged 237%; enough to make this Yankee sell on fear that Icarus was its manager. (In 2000, the fund fell 50%.)
Strategic Dividend & Income (FSDIX); Manager, Joanna Bewick
Lead manager Joanna Bewick invests in a mix of approximately 50% stocks, 15% real estate investments, 15% convertible securities, and 20% preferred stocks. The current mix is 47% stocks, 15% real estate, 9% convertibles, and 18% preferred, with the remaining in cash. It began trading in December 2003 and has a market value of more than $4 billion.
Income investors need three types of income. They need to have good bond income, they need to have some inflation protection, and they need to have non-bond income in the form of a less interest-rate-sensitive capital appreciation opportunity. That’s where Strategic Dividend & Income comes in.
The management team consists of Joanna Bewick (team leader since 4/1/2008), Ford O’Neil since (6/1/2012), Adam Kramer (since 8/1/2007), Scott Offen (since 7/26/2006), and Samuel J Wald (since 12/31/2003).
Bonus: For Growth & Income investors, combine Joanna Bewick’s three Strategic funds, Strategic Dividend Income (FSDIX), Strategic Income (FSICX) and Strategic Real Return (FSRRX), in a 65/20/15 split to create a strategic dividend and income portfolio.
Event Driven Opportunities (FARNX); Manager, Arvind Navaratnam
Long associated with hedge funds and their ability to go short, this new fund offers a decidedly different approach, one that makes it a unique offering among mutual funds and ETFs. Manager Arvind Navaratnam is able to capitalize on mid-cycle economic trends by investing in companies that he believes are involved in a special situation such as: mergers and acquisitions, corporate reorganizations, changes in ownership, deletion from a market index, material changes in structure or strategy, or changes in capital structure. It began trading in December 2013 and has a market value of $70 million.
Fidelity’s 3 Worst Funds for 2015
Fidelity isn’t in the business of telling you which of their funds not to own.
I am. While I spend my days making sure that the Fidelity funds we do own represent the best possible choices for our portfolios, the other side of that coin is knowing which funds to avoid.
My clear and distinct Buy, Sell and Hold recommendations for each Fidelity fund and Fidelity ETF in every issue of Fidelity Investor, is a current checklist of what I think should be owned or spurned. Such ratings change depending on a host of circumstances and concerns; manager changes, market conditions, economic data, geopolitical risk, etc.
In this Fidelity Investor Special Report, I wanted to provide both my Top 10 picks for 2015 and three funds to avoid at all cost.
Of course, the potential cost of forecasting is that the weather changes. By nature, coming from New England where the saying that, “If you don’t like the weather, wait 15 minutes and it will change” was first coined, makes me wary of any kind of forecasting. Still, given what I know at this moment in time, and given that I update my Buy, Sell and Hold recommendations every month, I feel comfortable suggesting that the following three funds should be sold if owned in a core, diversified portfolio and not bought if they’re not owned.
Caveat: I have one rules based, quantitative portfolio in Fidelity Investor and one rules based tactical trading service, Fidelity Sector Investor, which have two of my three funds to avoid now in their investment universe. (Both my Fidelity Investor Global Quant Portfolio and Fidelity Sector Investor’s tactical portfolios are designed to trade based on explicit rules rather than my bottom up, fundamental views.) One or both could trade in and out of either China Region or Select Gold over the span of any given year.
But you won’t find any of these funds in my Fidelity Investor core, fundamentally driven portfolios.
#1: China Region (FHKCX)
China was once the darling economy that could not only do no wrong, it was the boa constrictor that would swallow all other elephantine economies like our own. In 2015, I think they have bitten off more than they can chew. (Those of us who lived through the 1980s recall a similar idolization of Japan, Inc. only to watch Japan slide into an epic 20-year recession of its own real estate and banking bubble making.) China is now struggling with decelerating growth and trillions of dollars in muni-like debt that was generated en masse to fabricate Potemkin-like cities overnight, building infrastructure, housing, and populations who were drawn by jobs created by China’s cheaper labor. China’s cheaper labor is no longer as cheap – other emerging economies are beating them at that game, many closer to the borders of their better trading partners, and some with less recidivism of their products. As demand for China labor declines, their self-made real estate bubble deflates, creating both an economic and political problem that China will likely solve down the road … but not in 2015. It is too early to say definitively that China’s growth is more like the kind of false growth that an Olympic village has. But with plenty of politburo glam shots with gold tipped shovels at the start, and a lot of empty buildings, and hundreds of millions of mouths to feed that are now solely reliant upon the displaced cities into which they’ve been herded to sustain them, China may have the makings of more, rather than less, economic and social unrest. Avoid.
#2: Select Gold (FSAGX)
The gold rush is over. OK. Every now and then, I’d expect it to flourish as if it were coming back and staying for a while. But I’d rather watch Gold Rush on the Discovery Channel than discover what happens to my actual wealth were I to trade in my diversified funds for gold. That is, of course, not exactly what you’re doing here. Here, Select Gold own the miners that, in the main, tap veins for precious metals. There stock prices correlate to the price of gold – but it’s not a one to one correspondence. Nevertheless, in a slow growth environment here, a no growth environment across the pond, and ponderous geopolitical risks everywhere, you’d think gold would have been up 20% not down 30% … unless you were me. I see no inflation anywhere I look. I know the belief in gold as an inflation hedge is like praying to a votive for wealth. I know doomsayers and their gold hucking are hard to resist. But investors who poured money into the yellow metal over the last several years on the assumption that doomsayers on the U.S. Dollar, the U.S. economy, and the U.S. in general were right, learned the hard way that glittering predictions, more often than not, don’t pan out. Gold is a fear trade – not a growth investment. There’s less to fear than meets the headlines’ eyes. Don’t let the gold bug bite you. Avoid.
#3: Stock Selector Mid Cap (FSSMX)
Cost opportunity is the toll you pay for pursuing one thing at the expense of another. Sometimes it is not a question of a region or type of asset to avoid, but which offering in an attractive area of the marketplace you shouldn’t pursue in order to ensure you are pursuing the best option. In 2015, that fund is Stock Selector Mid Cap – a fund that is the right place and right time. I like mid cap companies despite their 2013 surge and 2014 see-sawing for these reasons: proven products, demonstrable market share, experienced management, and higher octane growth opportunities. However, I think that this fund is one of the weakest links in Fidelity’s otherwise very strong mid cap lineup. It may be that there are simply too many chefs in its kitchen; it’s a multi-manager fund (with some of the managers on the team among my top picks for 2014 in their own fund; for example Eddie Yoon is a stellar manager over at Fidelity Select Healthcare but why opt for a dilution of his talent here?). Avoid.