Introduction
There can be an overwhelming sea of mutual funds thereby making it hard to navigate and mostly in the event that one targets only the best performers. Fidelity Investments is a financial giant offering an array of mutual funds that help to meet different investment objectives. However it becomes a challenge for one to narrow down the long list. This essay reviews the world of Fidelity’s best performing mutual funds and presents you with whatever you need to make your investment decisions wisely. We will cover Fidelity’s investment philosophies and key performance metrics and and recent standouts across a range of categories. Armed with this information and your own risk tolerance you will be able to tailor an investment strategy to unlock the potential of Fidelity’s top performers.
Get familiar with the investment objectives and risk tolerance this is where the basis for choosing Fidelity mutual funds lies.
Now and to get off on the right foot in this plethora of top performing Fidelity mutual funds and the very foundation of investing is what needs to be laid. Two pillars will underpin the base an understanding of investment objectives and proper matching with your risk tolerance.
Investment Objectives
They are simply the overall goals of your financial life. Some common investment objectives include
Growth
You primarily want to see the growth of your capital in the long term. This would then be a call for investment in mostly high return but also the higher risk stocks.
Income
You are targeting mainly income generation from your overall portfolio. This could mean a call for investment in dividend paying stock or bond funds.
Capital Preservation
Your priority is to preserve your principal investment. This will mostly involve investing in low risk investments like money market funds or even short term bond funds with lower potential return rates.
Risk Tolerance
What amount of fluctuation in your investment value can you comfortably stomach? Your risk tolerance helps in picking funds that will keep you within your emotional comfort zone.
Conservative
You prefer loss avoidance over any potential growth. You then would be satisfied with low risk products such as bond funds.
Moderate
You may want to consider including stocks and bonds in your portfolio.
Aggressive
You are comfortable with large market swings in order to potentially obtain high returns. You can be attracted by growth stocks or sector funds.
The Relationship Between Goals and Tolerance
It’s all about moderation between your goals and risk tolerance. If you need your money for a short term goal like to fund a down payment on a home you might not feel comfortable with the volatility of a growth stock fund. If you have a very and very long time horizon for investing and though say and retirement then you could probably stomach some risk to get potentially higher returns.
Fidelity’s Investment Philosophies and Management Styles
Fidelity Investments offers a vast array of mutual funds and each representing a distinctly different investment philosophy and management style. Knowing what they are is critical in your search for the best Fidelity funds. Following is a rundown on the key players
Investment Philosophies
Value Investing
This investment philosophy is a search for securities that sell at less than the actual value of the shares. The value oriented funds at Fidelity try to buy undervalued companies with strong fundamentals on a bet that the market will eventually recognize their real worth.
Growth Investing
A high growth potential is assigned to companies against their premium trade at the moment. Fidelity funds that have growth oriented philosophy target companies with innovative products and strong positions in markets and capacity to generate future earnings.
Indexing
This investment philosophy is based on the passive tracking of a certain market index and like the S&P 500.
Management Styles
Active Management
These funds are managed by experienced portfolio managers who research investments actively and make a selection. Fidelity’s actively managed funds are based on the experience and competence of those managers in outperforming the market.
Passive Management
Here the fund manager just tracks a selected index with very minimal intervention. Most Fidelity index funds belong in this category and provide a way that’s more hands off.
The Fidelity Spectrum
Fidelity offers a spectrum of options that will suit the great majority of disparate investment philosophies. You’ll either find actively managed value funds searching for underpriced gems and growth oriented funds looking for the next big thing and or passively managed index funds providing broad exposure to the market.
Choose Your Path
The right course for any investor will depend on individual investment objectives and risk tolerance. If you can accept some level of risk in return for potentially higher returns and then actively managed growth funds may have some attraction. If low fees and diversification are more of a priority and then Fidelity index funds make for a strong competitor.
Outside of This Overview
Fidelity also makes use of other styles and strategies such as sector specific investing or socially responsible investing. Thus it will be necessary to go a step further to determine which of these philosophies and styles a particular fund adheres to.
By being familiar with Fidelity’s investment philosophies and management styles you are offered a handle to be in a position to cruise through its vast mutual fund collection. You will be able to handpick those funds that best suit your investment objectives and risk tolerance and thus lead you toward top performing funds most ideally positioned for your unique financial situation.
Key Factors Driving Performance?
The mutual fund world can sometimes seem like a whirlwind of numbers and charts. Under the hood and however and are a few key drivers that overwhelmingly affect the performance of a Fidelity mutual fund. Getting familiar with them is critical in selecting the best of the lot. Here are some driving forces
Market Conditions
The general outlook of the stock market is a significant factor. Bull markets when stock prices are rising tend to favor growth oriented Fidelity funds. On the other hand bear markets when stock prices are in decline may favor value oriented funds that may take advantage of underpriced companies.
Interest Rates
Interest rate changes can affect various asset classes.Conversely and when interest rates rise and people often shun equities in favor of those higher rates and creating opportunities for value oriented Fidelity funds.
Sector Performance
Various sectors of the economy have been known to grow independently of one another and often go into decline. For example if there is a boom in spending on technology then technology sector funds from Fidelity could benefit. Knowing which sectors are performing well may help you identify the top performing funds potentially.
Fund Management Skill
This is the trait connected with actively managed funds. The proficiency of a portfolio manager could be one of the major factors. The managers who constantly have an upper hand over the benchmarks and through smart security selection and perfect market timing are likely to bring superior returns.
Expense Ratio
This is an in effect and a cost that the fund charges to the investor to meet its operational expenses and hence and directly reduces your returns. All other things being equal and lower expense ratios offer the potential for higher returns to investors. Although the firm offers many funds with differential expense ratios and selecting those funds carrying lower fees could enhance your potential returns.
Portfolio Composition
Actual mix of the assets held in a Fidelity mutual fund is very important in how it performs. A fund that mostly puts its investment in large cap stocks will likely act differently from another that puts its investment in either small cap or international stocks. Knowing the breakdown of a fund’s assets can therefore help you evaluate its potential for growth and risk profile.
Interplay of Factors
It’s also important to remember that all these factors often work together. A good manager may be able to offset the effect of a shrinking market sector with astute investment decisions. Equally and low expense ratio can help maximize the returns that a good performing fund generates.
This information can be quite powerful in focusing on funds that have a good chance of becoming top performers and concentrating investment decisions on your goals.
Evaluation Metrics for Identifying Top Performers
Past performance is not indicative of future results but there are some metrics that can be looked at to help evaluate which of the many mutual funds available at Fidelity have the best chance of being top performers. The following are some of the key tools to have in your investment arsenal
Return Metrics
Total Return
This encompasses capital appreciation which refers to the increase in share price and as well as dividends paid out by the fund during a specific period. So a higher total return is an easier way to explain the growth potential of an investment fund.
The annualized return is an average return on an annual basis that the fund generates within a specified period. It makes it easier to compare funds which have been in business over different periods of time.
Risk Adjusted Return Metrics
Sharpe Ratio
This is a metric describing the excess return and or return above that of the risk free rate and per unit of risk as defined by the volatility.
Cost Metrics
Information Ratio
This is the cost that eats directly into your returns. Broadly and a low expense ratio means potentially higher returns for you.
Alpha
This measures the excess return of the fund with respect to a benchmark index and say S&P 500. A positive alpha means the fund has been able to outperform the benchmark probably due to the prowess of the fund manager.
Beta
This is a measure of the fund’s volatility against that of the market in general. A beta of 1 shows the fund moves with the market if greater than 1 and then it is more volatile.
Beyond the Numbers
Though these metrics are important tools and do remember to consider them in the light of a holistic look at the fund. Observe the investment philosophy and management style and portfolio composition and long term track record of the fund.
Seek Balance
No one metric is a silver bullet for identifying top performers. Combining several metrics gives the full picture of a fund’s risk adjusted return and cost efficiency and outperformance potential. This multifaceted approach will allow you to better understand Fidelity mutual funds and make informed decisions that align with your investment goals.
Investment Considerations and Risks
Before getting into the best Fidelity mutual funds there are a number of factors to be taken into account and risks involved with mutual fund investments. Here’s a breakout on some key things to consider
Market volatility
By nature the equity market is very volatile. The prices can swing abruptly. This volatility will have its impact on the value of your mutual fund holdings. Be prepared to ride out fluctuations of the market and more so if you invest in growth oriented funds that carry a higher risk profile.
Fees and Expenses
As with mutual funds it comes in a package of varieties of fees that take a big chunk out of your returns. This includes the expense ratio and management fees and trading costs. While some of the funds from Fidelity and such as the ZERO series are low cost and others might carry fairly high expense ratios.
Diversification
This is where mutual funds already diversify compared to an individual picking on shares but diversification may differ.
Investment Time Horizon
The length of time you intend to hold the investment also drastically affects how much risk you can stand. For long term goals you would have the capacity to handle the volatility of growth oriented funds that have the potential for higher returns for example and retirement.
Liquidity
Although most mutual funds are fairly liquid that is and you can redeem your shares relatively easily and quickly some may take a few days to sell your shares. Ensure that the investment matches your liquidity needs if you might want to get access to your funds fast.
Follow the Herd
Do not stupidly try to follow past performance. Funds that are leaders today will not necessarily be tomorrow’s leaders. Do your homework that is understand your risk tolerance and invest based on your long term financial goals and not necessarily recent trends.
Professional Guidance
One may need to seek professional advice and especially a new investor or one with a complicated financial situation.
To invest in mutual funds one must consider the investment considerations and risk factors for Fidelity with a much more informed and cautious approach. Indeed there is no shortcut to riches but understanding these factors makes you empowered to make well rounded investment decisions that go in line with your financial goals.
Do Your Own Research
Do not base your decision on past performance or on this essay. Using the above mentioned evaluation metrics and evaluate some Fidelity mutual funds that interest you. Fidelity has many resources available to help you do so.
Align with your goals
There could be alignment of your investments with your financial goals such as retirement and down payment and or education of children. A set of varied goals would require various investment strategies.
Invest for the Long Term
The stock market pays off patience. Focus on long term wealth creation instead of making any emotional decisions in the short term.
By the concluding points one can follow through and make use of such information obtained in this essay to create an Fidelity mutual fund investment strategy that will propel you on your way to achieve financial goals.Stay informed and make informed decisions and remain disciplined for long term success.
Conclusion
The pursuit of financial freedom and in most cases takes one directly into the world of mutual funds. This essay has provided you with an exciting journey through top performing Fidelity mutual funds and furnished you with the knowledge to make the best decisions regarding your investments.
We zeroed in on how to better align your investment objectives with your risk tolerance and the varied investment philosophies and management styles at Fidelity and and the key drivers of fund performance. We also reviewed important metrics of evaluation that can help in selecting potential top performers and highlighted the recent standouts across leading investment categories.
However the journey doesn’t end here. Rather all that has been learnt must go into structuring your personal investment strategy. Here are some final thoughts on how to do this
