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All Contents © 2020The Kiplinger Washington Editors
By Nellie S. Huang, Senior Associate Editor
| October 1, 2019
The days when successful mutual fund managers received the rock-star treatment are long gone. But when they did, many of them were busy helming the best Fidelity funds.
These days, the Boston-based firm wins attention for other parts of its business – it launched the industry’s first zero-fee index funds in 2018, for example. And yet, the firm’s lineup of actively managed mutual funds still includes a slew of standouts run by long-tenured managers.
Eighteen Fidelity funds are popular with retirement savers, according to the list of funds with the most 401(k) assets, provided by financial-data firm BrightScope. Seven are from the firm’s Freedom target-date fund series, four are index funds and seven are actively managed.
Here are some of the best Fidelity funds for your 401(k), as well as a couple popular options that don’t make the cut. We will analyze the actively managed portfolios and the Freedom target-date funds, and rate them Buy, Sell or Hold.
Returns and data are as of Sept. 30, unless otherwise noted, and are gathered for the share class with the lowest required minimum initial investment – typically the investor share class or A share class. The share class available in your 401(k) plan may be different.
Expense ratio: 0.53%
One-year return: 3.7%
Three-year annualized return: 9.3%
Five-year annualized return: 7.5%
10-year annualized return: 9.7%
Rank among the top 401(k) funds: #50
Best for: Investors looking for an all-in-one, 60% stock, 40% bond portfolio.
Reasonable risk is part of Fidelity Balanced’s mandate. The fund achieves this by investing roughly 60% of assets in stocks, for growth, and 40% in bonds, which offer stability and income.
Still, it’s worth noting that Fidelity Balanced is a tad more volatile than its balanced-fund peers (mutual funds that allocate 50% to 70% to stocks). How much more volatile? Over the past three years, the ride with Balanced was 13% bumpier than its peers. For context, the fund was 27% less rocky than the S&P 500.
But Balanced earns its place among the best Fidelity funds for 401(k) savers with its long-term performance. Its 10-year annualized return ranks among the top decile of its peer group. FBALX has been consistently good, too. In nine of the past 11 calendar years (that includes so far in 2019), the fund posted returns that outpaced 75% of the group or better.
Robert Stansky is the fund’s maestro. He makes the broader calls on how much of the portfolio sits in stocks and bonds. In 2013, he shrewdly kicked up the stake in stocks to 70%, which helped lift the fund to peer-topping returns in 2013 and 2014. In recent months, he’s trimmed the fund’s stock exposure a little to about 66% of assets.
A team of sector specialists do the stock picking – and here, Stansky can switch out or bring in specialists depending on what sectors he finds attractive. Right now, tech is tops at nearly 20% of the fund, including top holdings Microsoft (MSFT) and Apple (AAPL). Ford O’Neil takes charge of the bond side of the fund. FBALX yields 1.5%.
Expense ratio: 0.80%
One-year return: -1.5%
Three-year annualized return: 16.6%
Five-year annualized return: 12.9%
10-year annualized return: 15.3%
Rank among the top 401(k) funds: #66
Best for: Aggressive investors with long time horizons seeking high-octane growth.
Fans of index funds, listen up: Fidelity Blue Chip Growth outpaced the S&P 500 over the past three, five and 10 years, as well in eight of the past 11 calendar years (including so far in 2019). In other words, investors were better off with shares in Blue Chip Growth over the past decade than an S&P 500 index fund. A $10,000 investment in FBGRX 10 years ago would be worth more than $41,500 today – roughly $6,900 more than a similar investment in Vanguard 500 Index (VFIAX).
Of course, in recent years, the market has richly rewarded the kinds of companies that Blue Chip Growth invests in: fast-growing tech-related companies with dominant franchises. And yet the fund has done better than most. Over the past decade, all under manager Sonu Kalra, the fund returned an annualized 15.3%; that beats 89% of his competition – mutual funds that invests in large, growing companies – and the S&P 500.
At FBGRX, Kalra builds his portfolio of 300-odd stocks with a combination of high-quality, established firms, and nascent companies that may not be profitable yet. Over the years, he’s spiced up the portfolio with stakes in private companies, including Uber Technologies (UBER), before its initial public offering. He’s not afraid to take gutsy bets when he has strong opinions about a company’s prospects either. Recently, Amazon.com (AMZN), Google parent Alphabet (GOOGL) and Apple comprised a combined stake of nearly 20% of this Fidelity fund’s assets.
Expense ratio: 0.82%
One-year return: -1.3%
Three-year annualized return: 14.9%
Five-year annualized return: 11.6%
10-year annualized return: 13.7%
Rank among the top 401(k) funds: #4
Best for: Aggressive investors looking for a moderate-risk portfolio.
Fidelity Contrafund is not only among the best Fidelity funds on offer, but it’s the most popular actively managed U.S. stock fund among 401(k) savers. That’s for good reason. For nearly three decades, Will Danoff has run the fund with spectacular long-term results, enabling longtime shareholders to fund cushy retirements.
Danoff hunts down companies with fast-growing earnings. Currently, he maintains a portfolio of 270 stocks, led by Facebook (FB), Amazon.com and Warren Buffett’s Berkshire Hathaway (BRK.A). When he likes a company, he holds on. The fund’s 32% annual turnover implies a holding period of roughly three years. Berkshire has been in FCNTX since 2002. Three stocks – TJX Cos. (TJX), Danaher (DHR) and Colgate-Palmolive (CL) – have been in the fund since the late 1990s.
The fund is whoppingly large, with nearly $115 billion in assets all told, but that hasn’t held Danoff back. Over the past five years, Contrafund has gained 11.6% annualized, beating the 10.8% return in the S&P 500.
Expense ratio: 0.81%
One-year return: 1.2%
Three-year annualized return: 6.4%
Five-year annualized return: 4.4%
10-year annualized return: 5.9%
Rank among the top 401(k) funds: #46
Best for: Investors looking for an actively managed foreign-stock fund.
Fidelity Diversified International isn’t a horrible fund, but it might not knock your socks off with its track record, either.
Part of the problem is foreign markets have delivered uninspiring returns in recent years. That, combined with FDIVX’s average returns relative to its peers – mutual funds that invest in large, fast-growing foreign companies – makes it difficult to get excited about Diversified International.
Here’s the thing: The fund has lagged its bogey, the MSCI EAFE (Europe, Australasia and Far East) Index, over the past three years, albeit by a hair. But it has done better than the index over longer periods. For instance, over the past five years, Diversified International has outpaced the benchmark by an average of 1.2 percentage points annually. It also beats Vanguard Total International Stock Market Index (VGTSX) over the same period, with less volatility, too. (It does not, however beat the average fund in its peer group.)
So despite its middling returns relative to its peer group, you could do worse than Diversified International. Unconvinced? Split your foreign-stock investment in your 401(k) savings, putting half in Diversified International and half in an international-stock index fund.
Manager Bill Bower devotes 12% to emerging markets and 76% to developed foreign countries (with the rest in domestic equities and cash), so the fund offers broad exposure to foreign stocks. He focuses on high-quality business that throw off cash and smart managers at the top. Nearly 200 stocks fill the portfolio. German software firm SAP SE (SAP), French pharmaceutical Roche Holdings (RHHBY) and giant insurer AIA Group (AAGIY) are among the fund’s top holdings.
Expense ratio: 0.85%
One-year return: -4.5%
Three-year annualized return: 17.1%
Five-year annualized return: 14.0%
10-year annualized return: 15.9%
Rank among the top 401(k) funds: #22
Best for: Aggressive growth investors who can live with a bumpy ride.
If Fidelity Growth Company is available in your 401(k) plan, consider yourself lucky. The fund is closed to new investors outside of employer-sponsored savings plans, which is unfortunate, because this is one of the best Fidelity funds out there.
Just make sure you can tolerate some volatility.
Manager Steve Wymer hunts for firms with good long-term growth prospects, then holds on to them for years. He first bought Amazon.com shares in 1999. Microsoft has been in the fund since 1990. Many of the holdings are names you’ll recognize, as they’re large companies with dominant franchises: Lululemon Athletica (LULU), Salesforce.com (CRM), Visa (V). But nearly a quarter of the fund’s assets are invested in midsize and small companies. That makes FDGRX slightly more volatile than its large-growth fund brethren, Contrafund.
Growth companies have been in vogue for the past decade. When the market shifts, you can expect Fidelity Growth Company to stumble a bit. During the so-called lost decade, when the S&P 500 gained just 1.4% on average between 2001 and 2010, Growth Company edged the index, by an average 0.3 percentage points per year. And over the past 12 months – a time of heightened market volatility over concerns about a trade war and the possibility of a recession – FDGRX has greatly lagged the 3.9% return in the S&P 500 with 4.5% losses of its own.
But Fidelity Growth Company is the kind of fund you buy and hold for the long haul. Wymer’s 15-year record – 12.4% on average per year – beats 97% of all mutual funds that invest in large, growing companies, and the S&P 500, by wide margins.
Expense ratio: 0.52%
One-year return: -3.4%
Three-year annualized return: 7.5%
Five-year annualized return: 6.3%
10-year annualized return: 11.0%
Rank among the top 401(k) funds: #40
Best for: A satellite stock position to add some spice to core holdings.
Critics of Fidelity Low-Priced Stock say it’s gotten too big for a fund that focuses on smaller companies – the fund has $28.5 billion in assets. They say perhaps its best days are over. They’re correct, in part: Low-Priced Stock isn’t the same fund it was in its early years. But it’s still a worthy investment.
A lot can change in 30 years. When FLPSX first opened to investors in 1989, the fund held mostly small-company shares, and prospective stocks had to trade for $15 or less. Today, the portfolio holds a bit of everything – stocks in companies of all sizes. The portfolio has an average company market value of $8.5 billion, squarely in mid-cap territory. The fund also holds a sizeable slug (36% of assets) in foreign stocks, too. The low-price bar has changed to $35 per share.
But some things have remained constant. Master stock picker Joel Tillinghast still is at the helm. He has a little help: Five comanagers have come on to run 5% of the fund’s assets. The managers use the low-price measure as a way to find good values in small companies and out-of-favor larger firms. The team maintains a large portfolio of 800 stocks that’s top-heavy by design. The top 10 stocks account for roughly 30% of the fund’s assets; the bottom 300, a fraction of 1% of assets. The fund’s top three holdings include two U.S. firms, UnitedHealth Group (UNH) and Ross Stores (ROST), and Canadian supermarket company Metro Inc.
Since 2011, when the first comanagers came aboard, Low-Priced Stock has lagged the broad market. But smart investors will recognize that Fidelity Low-Priced Stock doesn’t match up well with other benchmarks, given its all-cap portfolio and its hefty slice of foreign stocks. That, coupled with Tillinghast’s outstanding long-term record and a strong absolute return in recent years, are reasons enough for us to like this Fidelity fund.
Think of it as added spice to your U.S. stock holdings.
Expense ratio: 0.54%
One-year return: 0.9%
Three-year annualized return: 9.1%
Five-year annualized return: 7.3%
Rank among the top 401(k) funds: #64
Best for: Conservative investors looking for a safer way to maintain a position in stocks.
Like other so-called balanced funds, Fidelity Puritan holds a constant mix of stocks and bonds. About two-thirds of assets are invested in stocks, with 28% in bonds and the rest in cash.
We were cool on this fund last year – we rated it Hold, though it had earned a Buy in our earlier reviews – because a new manager took over on the stock side in mid-2018. One year later, we’re still not willing to give FPURX a place among the best Fidelity funds.
Over the past 12 months, its 0.9% return lags 84% of its peers, which are mutual funds that allocate 50% to 70% of assets in stocks. You can do better. Its peer fund, Fidelity Balanced, has a one-year return that beats 51% of its peers. An index fund, Vanguard Balanced Index (VBINX), beats 81% of its peers.
Until we get more data on the new manager’s performance, we’d go for other options if they’re available to you, such as an index balanced fund such as VBINX.
Rank among the top 401(k) funds: 2020, #26; 2025, #29; 2030, #25; 2035, #36; 2040, #35; 2045, #53, 2050, #60
Best for: Investors who want a helping hand.
Target-date funds are an ideal choice for investors who don’t want to, or don’t know how to, make investment decisions on their own. They basically allow you to put your retirement savings and investing on autopilot.
Choose a fund with a target year that’s closest to the time you plan to retire, then sock your 401(k) savings money in it. Over time, the experts who run the fund will gradually shift your money into a mix of investments that are appropriate for your time horizon.
With 30 years to go before retirement, you’ll hold most of your assets in stocks and less in bonds; as you near your target year, your stock-bond mix will automatically shift to a more conservative, bond-heavy blend.
Fidelity’s Freedom target-date fund series is finally showing longer-term results of a refurbishment several years ago, and the results are good. The series is back on track. Over the past five years, most of the target-date funds have average annual returns that rank among the top 20% of their peer groups.
The Freedom glide path – the prescribed mix of stocks, bonds and cash at any point in time – is moderately aggressive. It starts (with 20 or more years to go before retirement) with 85% stashed in stocks, 7% in bonds and 8% in cash. Over time, it shifts to a more conservative blend, trimming the stocks and padding the bonds. At the target year, a Freedom target-date fund will hold roughly 50% in stocks, 35% in bonds and 15% in cash.
Even after retirement, Fidelity’s Freedom mutual funds continue to shift. At last report, the 2005 Freedom fund (FFFVX) held 28% in stocks, 53% in bonds and 19% in short-term debt and cash.