The past few years have been stock picker's markets, and 2024 is continuing this trend. What does that mean for investors? Put simply, it means that well-implemented active strategies can have better odds of outperforming compared to passive strategies. It also means that now is a good time to take a look at the best actively managed Fidelity funds.
Why Fidelity?
Fidelity belongs among the premier actively managed mutual fund companies in the investment universe. Their top-notch management is backed by a large and seasoned investment research team. Even when a lead manager leaves, it rarely causes a problem for fund performance because the research and other support are so strong.
"The firm's successful stock-picking mutual funds fueled its rise to prominence, and it has adapted well to investor preferences that have shifted markedly over the past two decades," writes Morningstar strategist Robby Greengold. While most inflows have gone to index funds and exchange-traded funds, Fidelity's asset-management division has achieved solid organic growth "by introducing or maintaining aggressive pricing on its own suite of passively managed funds and expanding its menu of client-demanded investment structures, such as managed accounts and collective investment trusts."
True, "the firm is not without blemishes," Greengold says. "It could stand to rationalize its lineup of active equity funds and do better to maintain continuity in an equity fund's portfolio construction as the fund's leadership inevitably changes." Still, he adds, Fidelity "has served its funds' investors well."
So, if you're looking for some of the best best active managers out there, Fidelity Investments can be a good place to begin your search.
How we chose the best actively managed Fidelity funds
Fidelity has dozens of actively managed funds, so narrowing them down to a handful is no easy task. To tighten up the process, we focused on funds that are highly rated by financial services firm Morningstar.
We chipped the list down even further by focusing on funds that can outperform in the current high-inflationary, high-interest rate environment that we are currently in.
With that in mind, here are five of the best actively managed Fidelity funds that should not just work well now, but also for the long run.
- Fund category: Large value
- Assets under management: $8.3 billion
- Expenses: 0.54%, or $54 annually for every $10,000 invested
When inflation is elevated and interest rates are up, investors tend to rotate out of growth stocks and into value, especially financials and defensive sectors. This makes the Fidelity Equity-Income (FEQIX, $70.60) one of the best actively managed Fidelity funds to consider now.
Indeed, the latest consumer price index (CPI) showed that inflation remains stubbornly elevated, with rising prices particularly notable in housing and energy.
"The lack of progress [on inflation] will mean the Federal Reserve will not be cutting interest rates until its July 31 meeting at the earliest," writes Kiplinger economist David Payne in his inflation outlook. "If inflation reports don't improve, the Fed could push off any rate cuts until its November 7 meeting, after the election."
FEQIX has historically achieved above-average returns while taking on a reasonable amount of market risk. To do this, fund managers have focused on market sectors, such as financials (21%), industrials (13%) and healthcare (12%), that have a combination of a value tilt and defensive nature at the same time.
As such, you get quality long-term holdings like Exxon Mobil (XOM), JPMorgan Chase (JPM), Danaher (DHR) and Bank of America (BAC).
When it comes to the best Fidelity mutual funds, the primary objective of this actively managed one is to invest in the best dividend stocks that yield higher than the average yield of the S&P 500. Its secondary objective is capital appreciation. Thus, investors get a fund that can produce income from dividends and avoid the worst of short-term market risk while accomplishing long-term growth.
Learn more about FEQIX at the Fidelity provider site.
- Fund category: Mid-cap blend
- Assets under management: $7.8 billion
- Expenses: 0.85%
Mid-cap stocks are often called the "sweet spot" of equity investing because they can potentially achieve greater long-term returns than large caps, while carrying less risk than small-cap stocks. While this sweetness is not guaranteed, the mid-cap area of the market is well worth a spot in a diversified portfolio.
And that's why the Fidelity Mid-Cap Stock (FMCSX, $41.99) is on this list of the best actively managed Fidelity funds to buy.
For 2024, mid caps can be a good alternative to large-cap stocks because the valuations are more attractive, and the long-term performance potential is there. For example, the price-to-earnings (P/E) ratio for FMCSX is 15.7, whereas the P/E for the S&P 500 is 24.8.
Plus, if the economy slows later this year or next, mid-cap stocks are one asset class that is "likely to rally the strongest coming out of any potential mild downturn," says Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management Company.
While it's true that mid caps are more cyclical and " not ideally positioned from a quality perspective for macroeconomic weakness" relative to large caps, Schutte values "their current cheapness and sensitivity to the eventual recovery once economic stabilization becomes apparent to the investment community."
The Fidelity Mid-Cap Stock is top-heavy in industrials (25%) and financials (16%) at present, with consumer discretionary stocks (12%) coming in third. The fund's biggest holdings include oil exploration and production company Imperial Oil (IMO) and Calvin Klein parent PVH (PVH).
As for performance, FMCSX's trailing return ranks in the top decile of mid-cap blend funds for the 15-year time frame and in the top quartile for the five-year and 10-year time frames.
Learn more about FMCSX at the Fidelity provider site.
- Fund category: Allocation – 70% to 85% equity
- Assets under management: $5.3 billion
- Expenses: 0.66%
The Fidelity Strategic Dividend and Income (FSDIX, $16.16) is one of the best actively managed Fidelity funds for those looking to mitigate inflationary risks with income earned from investments.
The strategy of FSDIX is to typically invest at least 80% of fund assets across four general investment categories and to balance the target allocation weights at 50% common stocks, 20% preferred stocks, 15% REITs and other real estate investments, and 15% convertible securities.
The common stock allocation focuses on companies that currently pay dividends and have the potential for future growth, which tends to arrive at a selection of value stocks. Top holdings at present include consumer products giant Procter & Gamble (PG), soft drinks maker Coca-Cola (KO), and logistics REIT Prologis (PLD).
For investors not familiar with convertible securities, they are typically bonds of companies with a low credit rating but high growth potential. These bonds can be converted into stocks, which provides financing flexibility for the issuing company. For investors, convertibles can be attractive since they may pay healthy yields and create potentially greater capital appreciation.
Learn more about FSDIX at the Fidelity provider site.
- Fund category: Large growth
- Assets under management: $135.9 billion
- Expenses: 0.39%
Amid a rising appetite for riskier stocks over the past year, the Fidelity Contrafund (FCNTX, $18.85) has put in a solid performance, boasting a double-digit percentage gain for the year-to-date. Still, this top actively managed Fidelity fund likely has a long runway ahead of it.
Morningstar categorizes FCNTX as a large growth fund, but it might better be described as a "go anywhere" fund. For example, some of the top large growth holdings in the portfolio include Amazon.com (AMZN), Microsoft (MSFT) and Meta Platforms (META). But you'll also find some value plays like Berkshire Hathaway (BRK.A) mixed in.
"We believe we have entered a new bull market led by the power of artificial intelligence [AI]," says James Demmert, chief investment officer at Main Street Research. "This new bull market can last for another seven to nine years, as AI is expected to drive significant productivity gains for companies across the board, which will strengthen corporate earnings."
And FCNTX has been a solid choice among long-term investors. For reference, the Fidelity Contrafund has averaged an annual return of 12.9% since its inception in May 1967. That's more than the historical average for stocks, which is about 10%.
And remember, the portfolio manager for FCNTX is the legendary Will Danoff, who's been at the helm of the fund since 1990. Some quick math tells you that's more than a 30-year track record.
Learn more about FCNTX at the Fidelity provider site.
- Fund category: Diversified emerging markets
- Assets under management: $8.9 billion
- Expenses: 0.90%
The Fidelity Emerging Markets Fund (FEMKX, $37.09) can be a smart choice in an inflationary environment.
Although higher relative inflation in developed countries doesn't automatically translate to higher stock prices for emerging markets, it's historically been a good inflation hedge. This is in part due to the high demand side of the economic equation coming from developed nations, like the U.S, that import more than they export.
Emerging markets exposure in FEMKX is predominantly Asia. This includes the top three countries by portfolio allocation: China (20%), India (16%), and Taiwan (15%). The top three sectors found in the fund are technology (30%), financials (18%), and consumer discretionary (11%).
Drilling down on specific companies recently held in FEMKX, you'll see global tech giants Taiwan Semiconductor (TSM), Tencent Holdings (TCEHY) and Samsung Electronics.
Keep in mind that the heavy exposure to China and technology means that downside potential is still present in the short-term market environment. But long-term performance has historically been above category average for FEMKX, as it outperformed more than 80% of emerging markets funds for the five-year period and 98% for the 10-year returns. This makes it one of the best actively managed Fidelity funds to buy for the long haul.
Learn more about FEMKX at the Fidelity provider site.
