published 25 January 2023
2022 was a stock picker’s market, and 2023 is continuing this trend. What does that mean for investors? Put simply, it means that well-implemented active strategies can have better odds of outperforming compared to passive strategies. It also means that now is a good time to take a look at the best actively managed Fidelity funds.
Fidelity belongs among the premier actively managed mutual fund companies in the investment universe. Their top-notch management is backed by a large and seasoned investment research team. Even when a lead manager leaves, it rarely causes a problem for fund performance because the research and other support are so strong.
So, if you’re looking for some of the best best active managers out there, Fidelity Investments can be a good place to begin your search.
Since Fidelity has dozens of actively managed funds, narrowing them down to a handful is no easy task. To tighten up the process, we’ve highlighted five of the best actively managed Fidelity funds that should not just work well in 2023, but also for the long run.
Data is as of Jan. 24.
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Fidelity Mid-Cap Stock Fund category: Mid-cap blendAssets under management: $7.9 billionExpenses: 0.8%, or $85 annually for every $10,000 investedMid-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 (opens in new tab), $39.35) 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 Jan. 24, the price-to-earnings (P/E) ratio for FMCSX was 12.4, whereas the P/E for the S&P 500 Index was 16.1.
The Fidelity Mid-Cap Stock is top-heavy in industrial and financial stocks at present, accounting for roughly 18% of the portfolio each. The fund’s biggest holdings include financial services firm First Horizon (FHN (opens in new tab)) and energy stock Hess (HESS (opens in new tab)).
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. (opens in new tab)
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Fidelity Equity-Income Fund Fund category: Large valueAssets under management: $7.0 billionExpenses: 0.57%When inflation is high and interest rates are rising, investors tend to rotate out of growth stocks and into value, especially financials and defensive sectors. This makes the Fidelity Equity-Income (FEQIX (opens in new tab), $65.57) one of the best actively managed Fidelity funds to consider now.
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 (15%) and energy (10%), 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 (opens in new tab)), JPMorgan Chase (JPM (opens in new tab)), Johnson & Johnson (JNJ (opens in new tab)) and Bank of America (BAC (opens in new tab)).
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. (opens in new tab)
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Fidelity Strategic Dividend and Income Fund Fund category: Allocation – 70% to 85% equityAssets under management: $5.1 billionExpenses: 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 (opens in new tab), $15.92) to outperform in 2023 and beyond.
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 (opens in new tab)), soft drink maker Coca-Cola (KO (opens in new tab)), and logistics REIT Prologis (PLD (opens in new tab)).
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. (opens in new tab)
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Fidelity Contrafund Fund category: Large growthAssets under management: $91.0 billionExpenses: 0.81%The Fidelity Contrafund (FCNTX (opens in new tab), $12.74) may still have some headwinds to face in 2023. Still, the depressed price makes now a great time to buy into one of the best actively managed Fidelity funds of all time.
Although Morningstar categorizes it as a large growth fund, FCNTX may be better described as a “go anywhere” fund. For example, some of the top large growth holdings in the portfolio include Amazon.com (AMZN (opens in new tab)), Microsoft (MSFT (opens in new tab)) and Meta Platforms (META (opens in new tab)). But you’ll also find some value plays like Berkshire Hathaway (BRK.A (opens in new tab)) mixed in.
Since technology is the top sector, weighing in at 21% of the portfolio, FCNTX has seen significant downside over the last 12 months. However, these losses also present an opportunistic entry point for long-term investors.
For reference, the Fidelity Contrafund has averaged an annual return of 12.2% 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. (opens in new tab)
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Fidelity Emerging Markets Fund Fund category: Diversified emerging marketsAssets under management: $6.2 billionExpenses: 0.90%The Fidelity Emerging Markets Fund (FEMKX (opens in new tab), $35.25) 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 (28%), India (18%), and Taiwan (13%). The top three sectors found in the fund are technology (25%), financials (18%), and consumer discretionary (13%).
Drilling down on specific companies recently held in FEMKX, you’ll see Taiwan Semiconductor (TSM (opens in new tab)) – also a Warren Buffett stock – Tencent Holdings (TCEHY (opens in new tab)) 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. (opens in new tab)
Kent Thune did not hold positions in any of these bond funds as of this writing. This article is for information purposes only, thus under no circumstances does this information represent a specific recommendation to buy or sell securities.
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