2022 is a stock picker’s market. What does that mean? 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 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 Fidelity’s best actively managed funds that should not just work well in 2022, but also for the long run.
Data is as of Aug. 3. Â
Fidelity Equity-Income Fund
- Fund category: Large value
- Assets under management: $7.2 billion
- Expenses: 0.57%, or $57 annually for every $10,000 invested
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 a fund like Fidelity Equity-Income (FEQIX, $64.94) a top pick 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 (19%), financials (15%) and consumer staples (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 JPMorgan Chase (JPM), UnitedHealth Group (UNH) and Bank of America (BAC).
When it comes to Fidelity’s actively managed funds, the primary objective of this one is to invest in dividend stocks that yield higher than the average yield of the S&P 500 Index. 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.
Fidelity Contrafund
- Fund category: Large growth
- Assets under management: $104.8 billion
- Expenses: 0.81%
Fidelity Contrafund (FCNTX, $14.61) may still have some headwinds to face in 2022. Still, the depressed price makes now a great time to buy into one of the best Fidelity actively managed 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), Microsoft (MSFT) and Meta Platform (META). But you’ll also find some value outliers like Berkshire Hathaway (BRK.A) in the mix.
Since technology is the top sector, weighing in at 23.8% of the portfolio, FCNTX has seen significant downside in the first half of 2022. However, these losses also present an opportunistic entry point for long-term investors.
For reference, FCNTX has had a 12.5% average annualized return since the fund inception May 17, 1967. That’s 25% more growth (2.5% higher return) than the historical average for stocks, which is about 10%.
And remember, the fund 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.Â
Fidelity Mid-Cap Stock
- Fund category: Mid-cap blend
- Assets under management: $7.3 billion
- Expenses: 0.85%
Mid-cap stocks have been called the “sweet spot” of equity investing and Fidelity Mid-Cap Stock (FMCSX, $37.74) is one of the best actively managed funds to buy in this category.
What do we mean by “sweet spot?” Mid caps 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.
For 2022, 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 June 29, the price-to-earnings (P/E) ratio for FMCSX was 12.9, whereas the P/E for the S&P 500 Index was 19.1.
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.
Fidelity Strategic Dividend and Income Fund
- Fund category: Allocation – 70% to 85% equity
- Assets under management: $5.6 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 Fidelity Strategic Dividend and Income (FSDIX, $16.29) to outperform in 2022 and beyond.Â
The FSDIX strategy is to normally invest at least 80% of fund assets aiming at 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 pay current dividends with potential for future growth, which tends to arrive at a selection of value stocks, such as top holdings consumer products giant Procter & Gamble (PG), logistics REIT Prologis (PLD), and soft drink maker Coca-Cola (KO).
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.
Fidelity Emerging Markets Fund
- Fund category: Diversified emerging markets
- Assets under management: $6.6 billion
- Expenses: 0.88%
As we mentioned in our best emerging markets funds for 2022 article, the Fidelity Emerging Markets Fund (FEMKX, $33.40) 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.Â
Emerging markets exposure in FEMKX is predominately Asia, including top three countries by portfolio allocation, China (25%), India (17%), and Taiwan (13%). Top three sector exposure is technology (25%), financials (16%), and communication (10%).
As for specific companies recently held in FEMKX, you’d see Taiwan Semiconductor (TSM), 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, especially if COVID-19 shutdowns return. But long-term performance has historically been above category average for FEMKX, as it outperformed 96% of emerging markets funds for the five- and 10-year returns.Â
Learn more about FEMKX at the Fidelity provider site.
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.Â
