The 5 Best Actively Managed Fidelity Funds to Buy Now

Fidelity Equity-Income Fund

• Fund category: Large value
• Assets under management: $6.9 billion
• Expenses: 0.57%, or $57 annually for every $10,000 invested

When inflation is high 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, $65.09) 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 food. And while Kiplinger economist David Payne expects inflation to be below 4% by the end of 2023, core inflation, which excludes volatile food and energy prices, will likely be above 5% through December.

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 healthcare (18%), financials (13%) and consumer staples (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), Johnson & Johnson (JNJ) and Bank of America (BAC).

When it comes to the best Fidelity 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.

Fidelity Mid-Cap Stock

• Fund category: Mid-cap blend
• Assets under management: $7.9 billion
• Expenses: 0.8%

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, $38.02) is on this list of the best actively managed Fidelity funds to buy.

For 2023, mid-cap 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, as of April 24, the price-to-earnings (P/E) ratio for FMCSX was 13.3, whereas the P/E for the S&P 500 Index was 22.1.

Plus, given the chance of a recession hitting later this year – Kiplinger places the odds of one occurring at 50-50 – 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 (23%) and financials (16%) at present, with consumer discretionary stocks (11%) coming in third. The fund's biggest holdings include homebuilding materials provider Builders FirstSource (BLDR) and energy stock Hess (HESS).

As for performance, FMCSX ranks in the top decile of mid-cap blend funds for the three-year, five-year, and 10-year return, and it ranks in the top quartile for 15 years.

Learn more about FMCSX at the Fidelity provider site.

Fidelity Strategic Dividend and Income Fund

• Fund category: Allocation – 70% to 85% equity
• Assets under management: $5.1 billion
• Expenses: 0.68%

Inflationary environments generally favor value stocks and real estate investment trusts (REITs) over growth stocks. That sets the stage for funds like the Fidelity Strategic Dividend and Income (FSDIX, $15.80) to outperform in the near term.

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.

Fidelity Contrafund

• Fund category: Large growth
• Assets under management: $98.0 billion
• Expenses: 0.55%

Amid a rising appetite for riskier stocks in 2023, the Fidelity Contrafund (FCNTX, $13.49) has put in a solid performance, boasting a double-digit percentage gain for the year-to-date. Considering the awful run it had in 2022, it's still down more than 11% year-over-year, and the depressed price makes now a great time to buy into one of the best actively managed Fidelity funds of all time.

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.

"Looking ahead, the key question is whether the macroeconomic environment will remain supportive for growth stocks," says Jeffrey Buchbinder, chief equity strategist for LPL Financial. "We're in no rush to declare the value run is over, but with more evidence this week of easing inflation pressures, macro conditions are moving in the direction of growth stocks despite premium valuations."

And FCNTX has been a solid choice among long-term investors. For reference, the Fidelity Contrafund has averaged an annual return of 12.4% since its inception in May 1967. That's roughly 20% more growth (2.2% higher return) 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.

Fidelity Emerging Markets Fund

• Fund category: Diversified emerging markets
• Assets under management: $7.0 billion
• Expenses: 0.90%

The Fidelity Emerging Markets Fund (FEMKX, $33.31) 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 (27%), India (15%), and Taiwan (13%). The top three sectors found in the fund are technology (27%), financials (18%), and consumer discretionary (13%).

Drilling down on specific companies recently held in FEMKX, you'll see Taiwan Semiconductor (TSM) – a Warren Buffett stock – Tencent Holdings (TCEHY) and Samsung Electronics.

Keep in mind that the heavy exposure to China and to 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 90% of emerging markets funds for the five- and 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.