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All Contents © 2016The Kiplinger Washington Editors
Fidelity manages 22 of the top 101 funds in 401(k) plans, second only to Vanguard’s total of 32. Overall, retirement savers who have invested in the Boston-based fund giant’s most popular offerings have fared well. None of the 22 Fidelity funds have been disasters, and a few have been strong performers.
As part of our series on the best mutual funds for your 401(k) retirement savings, we took a closer look at the nine actively managed Fidelity stock funds that made the list, and rated each as “buy,” “sell” or “hold.” We also evaluated the nine Fidelity Freedom target-date funds as a group. While we didn’t rate the four Fidelity Spartan index funds on the list—500 Index (FUSEX), Extended Market Index (FSEMX), US Bond Index (FBIDX) and International Index (FSIIX)—we endorse all of them.
The nine actively managed stock funds are listed in order of their 401(k) assets, starting with the fund with the most assets, based on data from BrightScope, a consulting firm that rates and ranks retirement plans. Have a look.
By Nellie S. Huang, Senior Associate Editor
, Updated September 2015
Assets: $113.3 billion
Expense ratio: 0.64%
1-year return: 15.8%
5-year return: 16.8%
10-year return: 9.8%
We are huge fans of Will Danoff, who has steered this fund to an annualized return of 13.4% since becoming manager 25 years ago. That beat the S&P 500 by an average of 3.2 percentage points per year.
But the fund’s enormousness gives us pause. With more than $100 billion in assets, Contra is the third-largest actively managed fund in the country. That dwarfs the $3 billion in the average large-company mutual fund. We’re aware that Contra beat the S&P 500 by 5.4 percentage points in the first seven months of 2015. But longer term, we believe the massive asset base will present a hurdle, even for the brilliant Danoff.
Expense ratio: 0.82%
1-year return: 21.7%
5-year return: 20.1%
10-year return: 11.5%
This outstanding fund is closed to new investors, except for members of retirement plans that offer it. If yours does, consider yourself lucky.
In 2014, Growth Company was one of the few actively managed large-company stock funds to outpace the S&P 500. Steven Wymer, the fund’s manager since 1997, has always been drawn to technology and health care companies. At last report, he had a combined 59% of Growth Company’s assets in those sectors. But he keeps a fine balance between holding aggressive, turbocharged stocks and owning established companies growing at a steady pace. The fund’s top holdings include Apple and Facebook.
Assets: $44.2 billion
Expense ratio: 0.82%
1-year return: 9.3%
5-year return: 15.9%
10-year return: 9.1%
Joel Tillinghast, who launched this quirky fund in 1989, has had six comanagers since 2011. But he still selects the stocks for 94% of the fund’s assets, which, at $44 billion, are considerable. Together, “Team Joel” seeks high-quality, growing companies trading at bargain valuations.
Low-Priced Stock is the poster child for asset bloat, which is why we rate it a “hold” rather than a “buy.” Size has affected the way it invests: The fund once concentrated on small companies and stocks trading for $15 or less. Now Low-Priced Stock invests in firms of all sizes and looks for share prices of $35 or less at initial purchase. At last report, 34% of its assets were in large-company stocks, according to Morningstar.
Small companies still play a role; the fund has 28% of its assets in small-capitalization and micro-cap stocks. Among Low-Priced Stock’s 911 holdings are microscopic positions—less than 0.01% of assets—in scores of stocks.
Assets: $25.1 billion
Expense ratio: 0.91%
1-year return: 6.9%
5-year return: 9.9%
10-year return: 5.8%
The first thing you need to know about this foreign stock fund is that 7% of its assets are in U.S. companies. That helps explain why Diversified International, Fidelity’s biggest foreign stock fund, has performed relatively well in recent years. (U.S. stocks did better than foreign stocks in 2013 and 2014.) Over the past three years, the fund’s 14.5% average annual return beat the typical fund that focuses on large, growing foreign companies by an average of 3.3 percentage points per year. William Bower, who has run the fund since 2001, searches for high-quality, growing companies with strong balance sheets.
His fund outpaced or matched the MSCI EAFE index, which tracks foreign stocks in developed countries, in eight of the past 11 calendar years (including so far in 2015).
Assets: $29.2 billion
Expense ratio: 0.56%
1-year return: 9.0%
5-year return: 11.8%
10-year return: 7.2%
As is typical of balanced funds, this fund holds more of its assets in stocks than in bonds. But in recent years, Balanced’s tilt toward stocks—67% of assets at last word—has been a bit higher than most of its peers. The fund balances that risk, however, by investing cautiously on the bond side, with an emphasis on high-quality government and corporate bonds.
Running the show are Robert Stansky, who has led the stock side of the portfolio since 2008 (he has nine comanagers), and Ford O’Neil, who came on board in late July to run the bond portfolio. We’re comfortable with O’Neil’s recent arrival. He comanages Fidelity Total Bond (FTBFX), an intermediate-term bond fund that is a member of the Kiplinger 25.
Assets: $26.0 billion
Expense ratio: 0.56%
1-year return: 9.6%
5-year return: 12.1%
10-year return: 7.3%
Like Balanced, Puritan, with 69% of its assets in stocks, is more aggressive than the typical balanced fund, which normally keeps about 60% of assets in stocks.
Ramin Arani, who took over stock-picking duties in 2007, dials up the risk with big bets on tech and health care stocks—22% and 19% of the fund’s stock holdings, respectively. He balances bets on emerging biotech companies, such as Puma Biotechnology, with more-established companies, such as Amgen. Since Arani came on board, Puritan has outpaced the typical balanced fund in every calendar year except 2008, when Puritan surrendered 29.2% and the average balanced fund lost 28.0%.
In July, Michael Plage took over the bond side of the portfolio. Plage, who joined Fidelity in 2005, comanaged Fidelity Corporate Bond (FCBFX) from its launch in May 2010. Over the past five years, Corporate Bond has outperformed 74% of its peers. Junk bonds (debt rated double-B or lower) recently represented 5% of Puritan’s assets and 16% of its bond holdings, a bit more than the high-yield allocation in the average balanced fund. Harley Lank has run the high-yield portion of the bond portfolio since 2003.
Assets: $13.5 billion
Expense ratio: 0.77%
1-year return: 21.3%
5-year return: 20.4%
10-year return: 12.2%
Buckle up! OTC Portfolio aims to beat the technology-heavy Nasdaq Composite index. As a result, the fund has twice the exposure to tech stocks as the average large-company fund. And, says Morningstar, it holds more small and mid-cap stocks than the typical large-
Since Gavin Baker became manager in 2009, the fund has returned 20.6% annualized, topping the Nasdaq Composite by an average of 0.9 percentage point per year and the S&P 500 by 3.7 points per year.
But with those results has come added volatility: The fund has been about 20% jumpier than the typical large-company growth fund over the past five years.
Assets: $21.2 billion
Expense ratio: 0.80%
1-year return: 19.7%
5-year return: 19.5%
10-year return: 10.0%
Manager Sonu Kalra must invest most of Blue Chip’s assets in companies that are members of the S&P 500 or the Dow Jones industrial average, or firms that have a market value of at least $1 billion if they are not in either of those indexes. On top of that is a growth requirement: Kalra seeks firms with expected long-term earnings growth of at least 10% a year.
Blue Chip’s holdings reflect Kalra’s experience running other tech-oriented funds, including OTC Portfolio and Fidelity Select Computers. Blue Chip has 34% of its assets in tech stocks, including Apple, Google, Amazon.com and Facebook, the fund’s four biggest holdings. Blue Chip Growth’s annualized return of 20.7% since Kalra became manager in mid 2009 beat the S&P 500 by an average of 3.8 percentage points per year.
Assets: $10.0 billion
Expense ratio: 0.91%
1-year return: 6.3%
5-year return: 9.5%
10-year return: 6.2%
In five of the past 10 calendar years, International Discovery ranked in the bottom half of funds that invest in large, fast-growing foreign companies. The fund’s long-term record is above average, though, because in four of those years, it landed in the top 14% of its category.
William Kennedy, who took over as manager in late 2004, favors high-quality, growing companies trading at reasonable prices. But Discovery isn’t as large-cap-focused as most of its peers; the fund recently had 23% of its assets in mid-cap stocks, compared with 13% for the average large-company foreign stock fund. The fund also has 8% of its assets invested in emerging-markets stocks. Its top three holdings: Swiss drugmaker Novartis, French energy behemoth Total, and Unilever, the British–Dutch consumer-products giant.
Target-date funds are designed to be a one-stop solution: You invest your money in a fund with a date that’s closest to the year you plan to retire and let the pros do the rest. They decide how much of your money should be devoted to stocks, bonds and other assets, and they shift the proportions to a more conservative mix over time.
Nine of Fidelity’s Freedom funds, from target date 2010 through 2050, rank among the top 101 funds in 401(k) plans. Long-term results have been mediocre, but the funds are slowly improving. Fidelity has been revamping the Freedom funds, which invest in other Fidelity funds, for three years. The changes included the creation of a new brand of funds, known as Series funds, to be used exclusively for the Freedom line. The firm also revved up the funds’ glide paths (the changes in the stock-bond mix over time) to be more aggressive. Now the percentage of each Freedom fund devoted to stocks matches or exceeds that of its typical peer.
The funds’ performance, relative to their peers, improved in 2014. But we would like to see more consistency before we recommend them. Of course, if your 401(k) plan offers the Freedom line and you want to own a target-date fund, stick with them. The funds could be better, but they’re not awful.
Fidelity Freedom 2010
Fidelity Freedom 2015
Fidelity Freedom 2020
Fidelity Freedom 2025
Fidelity Freedom 2030
Fidelity Freedom 2035
Fidelity Freedom 2040
Fidelity Freedom 2045
Fidelity Freedom 2050
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