4 Great Fidelity Stock Funds for Retirement Savers
These picks from the popular fund family offer varying levels of risk to investors looking to build nest eggs.
Fidelity is a popular name with retirement savers. According to Brightscope, a company that rates retirement plans, Fidelity funds account for the second-greatest share of all 401(k) assets after Vanguard—and for good reason. The Boston-based firm offers a wide variety of funds that consistently produce good returns at below-average cost. In particular, their actively managed funds benefit greatly from the firm's stock research capabilities, notes Jack Bowers, executive editor of the independent investing newsletter "Fidelity Monitor & Insight."
But not every Fidelity fund will be a winner. After all, out of the 311 choices available (compared with just 91 Vanguard funds), you're bound to find some duds. How do you choose which funds will work for you? Depending on your investing style and timeline, here are the Fidelity stock funds we recommend you consider to round out your retirement portfolio. Unless otherwise indicated, the funds charge no sales loads and require a minimum initial investment of $2,500. (All returns and related data are through March 26.)
The giant Fidelity Contrafund (symbol FCNTX), with $112.8 billion in assets, has proved to be a stable performer over the long haul. It has bested the five-, 10- and 15-year returns of Standard and Poor's 500-stock index and has kept pace with the S&P 500 over the past 12 months. The index narrowly outperformed Contrafund over the past three years (15.7% versus 15.2%). The fund has returned an average of 13.4% a year since Will Danoff took the helm in 1990, beating the S&P 500 by 3.2 percentage points per year during that quarter-century stretch. Contrafund charges a low 0.64% in annual expenses.
Danoff is sticking with the strategy that works for him: zeroing in on large companies with great growth potential. His recent investments, according to Morningstar, have included Alibaba's IPO (BABA), as well as stakes in private companies Pinterest and Uber. The largest holdings include familiar names, such as Berkshire Hathaway (BRK-A), Google (GOOGL) and Wells Fargo (WFC). The fund's sheer size is a reason for pause—it can be a challenge to put nearly $113 billion to work effectively—but Danoff's track record speaks for itself.
"I think if you want a low-risk stock fund, you can't really go wrong with Contrafund over time," says Bowers. "Will Danoff is a really smart guy, making some savvy long-term bets that will likely pay off."
A member of the Kiplinger 25, the list of our favorite no-load mutual funds, Fidelity New Millennium (FMILX) has similarly maintained a good long-term record. Over the past 10 years, a period that included both bear and bull markets, the fund posted an annualized return of 10.4%, 2.3 percentage points a year better, on average, than the S&P 500. On a shorter-term basis, however, New Millennium, which has the flexibility to invest in companies of all sizes, has trailed the broad market considerably. Over the past year, the fund has gained just 4.6%, nearly 9 percentage points worse than the S&P 500.
Part of New Millennium's recent problem is its tilt toward smaller companies, manager John Roth's area of expertise. At last report, the fund had 26% of its portfolio in stocks of medium-size companies and 9.5% in smaller-company stocks. By comparison, the average fund in Morningstar's "large growth" category, to which New Millennium belongs, had 18.4% of its portfolio in medium-size companies and 2% in smaller companies. As investors have flocked to the apparent stability of the biggest names in the S&P 500, smaller companies—and the funds that invest in them—have suffered. But since Roth took control in 2006, his strategy of broad diversification has worked in the fund's favor, and it should continue to do so in the long run. New Millennium charges 0.81% a year in expenses.
Blue Chip Growth
One of the family's top performers lately has been Fidelity Blue Chip Growth (FBGRX). Over the past year, the fund has gained 18.9%, surpassing the S&P 500 by 5.6 percentage points. Long-term results aren't too shabby, either: In the past 10 years, the fund has gained 10.2% a year, on average, which is 2.1 points better than the index. Blue Chip Growth also sports below-average fees, with an annual expense ratio of just 0.80%. The minimum initial investment drops from $2,500 to $500 for IRAs.
Much of the fund's recent success has been driven by its big stake in technology stocks, which make up 30.6% of its portfolio. By comparison, Contrafund is just 23.2% in tech stocks. Among Blue Chip Growth's top holdings are Apple (AAPL), at more than 6% of its portfolio, Google and Facebook (FB). "If you want something that's higher octane, my favorite growth fund right now is Blue Chip Growth," says Bowers. "It comes with higher risk, making bigger tech bets than Contrafund, but those have done well over the last year and three years."
Because Bowers thinks the technology sector still has room to run, he has 30% of the Select Model Portfolio, which he manages for his newsletter, in Fidelity Select Electronics (FSELX), the family's top performer over the past year. "I'm a big believer in the chip makers," he says. "Chips are going into everything, and so companies that are in the semiconductor business and making investments [in new technologies]—companies like Intel—I think are going to do very well." Three big names in semiconductors—Broadcom (BRCM), Intel (INTC) and Texas Instruments (TXN)—make up 19.1% of the fund's portfolio.
But, Bowers recognizes, Select Electronics and his sector-focused model portfolio are not for the faint of heart. (Fidelity's Select funds invest in specific sectors.) Such aggressive bets should be reserved for investors with goals that are at least 10 years away, who have time to recover should the hot stocks of the day run out of steam.
Indeed, Select Electronics has been on a tear, gaining 26% over the past year, nearly twice the performance of the S&P 500 and at the top of the tech-fund category. However, over the past 15 years, a stretch that includes the bursting of the dot-com bubble, the fund lost 1% a year, on average, which is 4.7 percentage points worse than the S&P 500. Annual expenses are 0.79%, and the minimum initial investment for an IRA is $500.