Fidelity has won 18 Lipper Awards recently across 15 funds. The awards were given on the basis of “risk-adjusted, consistent return.” There was no sector or asset class concentration in the awards, with everything from treasury bonds to biotechnology and China winning recognition. In several cases, the institutional (lower fee) version of a fund won the award.
Below are the winners:
Fidelity Advisor Biotechnology (Institutional)
Fidelity Advisor Income Replacement 2042 (Institutional)
Fidelity Advisor International Real Estate (Institutional)
Fidelity Pacific Basin
Fidelity Select Consumer Finance
Fidelity Select Defense and Aerospace
Fidelity Spartan Long-Term Treasury Bond Index
Fidelity Advisor China Region (Institutional)
Fidelity Advisor High Income Advantage (Institutional)
Fidelity Convertible Securities
Fidelity Select IT Services
Fidelity Intermediate Government Income
Fidelity Select Energy
Fidelity Select Software and Computer Services
We hold several of these funds in our portfolios, including Fidelity Convertible Securities (FCVSX) and Fidelity Select Energy (FSENX). In addition, numerous other funds, such as Fidelity Select Biotechnology (FBIOX), which have been highly ranked the newsletter. In general all of these funds are solid choices in their part of the market. This month we’ll look at how some of these asset classes and sectors are shaping up in 2014.
The biotechnology sector has been outperforming for more than two years now, with the fund’s performance accelerating in early 2014 (a chart of FBIOX starts looking hyperbolic in late 2013). Going back to the start of its outperformance in 2011, when FBIOX was up about 17 percent in a year when the S&P 500 Index was flat, the fund climbed as much as 236 percent from its closing price in 2010. Since hitting its peak, however, shares have tumbled, down 17 percent over the past two months.
There are reasonable explanations for biotech’s slide. One is company specific issues. As mentioned in the Market Perspective, Gilead (GILD) received a letter from Congress asking about the $84,000 price for its hepatitis-C drug, Sovaldi. However, while the Congressional inquiry may have shaken up the company, the losses in GILD are right in line with the sector. Many analysts see GILD rebounding from the sell-off. The drug, while expensive, is also highly effective and cheaper than the alternative of treating patients with this chronic illness.
The other reason for the drop in stock prices is overbought conditions. Biotechnology exploded higher in 2014. FBIOX was up more than 25 percent by early March, compared to the S&P 500 Index which was only breaking into positive territory in March. Investors piled into volatile, high growth sectors such as biotechnology and Internet stocks early in 2014 and this resulted in a sell-off over the past few weeks. Given the run-up, further profit taking may be a possibility given the huge advance in biotechnology shares. Over the long-term, the outlook for biotechnology remains positive due to an aging population and a need to find more cost effective treatments.
Fidelity Convertible Securities (FCVSX) remains a solid choice for investors looking for a little more risk than bonds, but less risk than stocks. Convertible bonds can be converted into equity once the stock price reaches a certain threshold. Those bonds a long way from converting to equity will behave in a more traditional manner. As the stock price climbs, the bonds begin behaving more like equities. These funds offer some downside protection when stocks fall (since they trade more like bonds) and they offer upside during bull markets.
Convertible bonds yield about 2 to 3 percent, and FCVSX paid a yield in the middle of those two figures last year. Fidelity Convertible Securities gained 24 percent last year, lagging the 31.9 percent advance in the S&P 500 Index. The future significantly outperformed straight bond funds, many of which lost ground due to rising interest rates.
FCVSX had outperformed the S&P 500 Index for most of this year, although it how now lost some ground, trading even with the broader index. The fund has about 18 percent of assets in equities and two of those equities are top ten holdings: General Motors (GM) and Citigroup (C). GM has recall problems this year, and Citi failed its stress test last week, sending shares sharply lower. It’s a bit of bad luck for FCVSX, but the fund won its Lipper Award for 5-year performance and investors should keep an eye on the long-term performance. Unlike other more volatile sectors, the benefits from owning FCVSX accrue more slowly across a complete market cycle.
Fidelity Pacific Basin (FPBFX) won three awards for three-, five- and ten-year performance. Manager John Dance was appointed in October of 2013, so he has some big shoes to fill. The fund has hit a new post-2008 high, which is better than the benchmark Pacific/Asia indexes. Strong performance came on the back of technology shares, helping FPBFX to track the Nasdaq as it moved higher in 2013. The top holding in FPBFX is technology giant Softbank, plus both Taiwan Semiconductor and Tencent Holdings are counted among the top ten. Softbank and Tencent both rallied more than 80 percent last year.
FPBFX also benefited from Abenomics last year. The rapid devaluation of the yen unleashed a stock market rally, but with about 37 percent of assets in Japan, FPBFX will need to see this trend continue, something which is an open question in early 2014. Australia is the next largest country exposure in the fund at 13 percent of assets, followed by Hong Kong at 12 percent, China at 9 percent and Korea at 8 percent. These four economies are all closely linked to the Chinese economy and the slowdown in China is worrisome.
Another Lipper Award winner was the institutional class of the China Region (FHKCX) fund. Chinese shares are nearly flat for the past 5 years, having peaked in summer 2010, but FHKCX kept posting gains. It still hasn’t surpassed its 2008 peak, but the performance is very good considering the overall condition of the Chinese stock market. This makes FHKCX an attractive pick for investors looking to buy China. It also shows that Fidelity has strong analysts who have helped keep two emerging market heavy funds outperforming their peers, and that gives us more confidence in the recent appoint of John Dance as manager of the Pacific Basin fund.
At a time when ETFs are providing a formidable challenge to mutual funds, Fidelity’s strong management shows that active managers still have much to offer investors. Those who favored a market capitalization weighted China index ETF, for example, would have seen their money go nowhere over 4 years, while Fidelity’s China Region fund racked up respectable gains. Active managers have some restrictions on how they invest, but they also have more freedom to shift a portfolio towards sectors and countries experiencing bull markets.
Furthermore, awards were won across a spectrum of funds at Fidelity, including convertibles, international REITs, bonds and sector funds. This shows the strength of Fidelity’s managers and the analysts who help them find individual assets that can outperform the market. While the list of winners above is strong, it is not an exclusive list of the many great funds offered by Fidelity.