Best Fidelity Funds for Your Retirement Nest Egg
Fidelity is home to some of the greatest stock fund managers of all time. At the top of the list is Peter Lynch, who during his tenure at Fidelity Magellan from 1977 to 1990 delivered a 29.1% annualized return. He beat out all other stock funds and bested Standard & Poor’s 500-stock index by an average of 13.5 percentage points per year. Since then, other stars have shone brightly, including Contrafund’s Will Danoff, Low-Priced Stock’s Joel Tillinghast and Growth Company fund’s Steve Wymer.
The firm’s string of famous managers may explain why 22 of its funds land on a list of the 105 most popular mutual funds in employer-sponsored retirement savings plans. We set out to identify the best funds on the list. In the case of Fidelity, there are four index funds, nine actively managed funds and nine funds in the firm’s Freedom target-date series, all of which hold a mix of actively managed funds and index funds. We focused our analysis on the actively managed funds and the Freedom target-date series, since we recently named our favorite Fidelity index funds .
We rate the nine actively managed funds and the collection of target-date funds Buy, Sell or Hold based on our analysis of the funds’ performance and prospects. A Buy rating indicates the best Fidelity funds for your retirement savings from among the group of funds analyzed.
The list of funds, based on 401(k) assets under management, was generated for Kiplinger by BrightScope. a financial-information company that rates retirement-savings plans. The funds are listed in alphabetical order. We used data for the Investor share class for each fund, but your retirement plan may have access to a lower-cost share class, such as a K-class or a class called a collective investment trust (a pool of assets organized as a trust) that is run with a similar strategy to that of the mutual fund. Funds that are nominally closed to new investors may be open to participants in a 401(k) plan. Returns are as of October 17.
Ten-year annualized total return: 6.1%
As this fund’s name implies, its assets are balanced between stocks and bonds. The fund typically holds a mix of roughly 60% stocks and 40% bonds. We say roughly because lately, the stock portion of the fund has been a bit higher. It hit 67% in late 2015, according to Morningstar, and currently sits at 64% of assets. But that helps explain the fund’s three-year record, which outpaced 94% of its peers (funds that normally invest 50% to 70% of their assets in stocks and the rest in bonds).
Don’t be turned off by the long list of 11 managers. Fidelity veteran Robert Stansky makes the call on the amount of the fund’s assets that goes into stocks and bonds. And he heads the stock-picking team of nine sector-focused managers, each of whom runs his own slice of the fund. They home in on high-quality, growing large-company stocks trading at reasonable prices.
Ford O’Neil takes charge of the bond side. Lately, he’s been tilting more toward investment-grade corporate bonds, but he also owns Treasuries and asset-backed securities. The bond side of the fund has a duration—a measure of interest-rate sensitivity—of 5.1 years. A duration of 5.1 years implies that if interest rates rise by one percentage point, the fund’s bond portfolio will lose 5.1% of its value. Bond prices and interest rates move in opposite directions.
SEE ALSO: 6 Best Mutual Funds for Value Stocks
Ten-year annualized total return: 7.6%
It’s hard to argue with Joel Tillinghast’s long-term results. Since he opened Low-Priced Stock in 1989 as a fund that would primarily invest in stocks that sold for $15 or less at the time of purchase, he has delivered a 13.5% annualized return. Only one other diversified stock fund has done better over that time. Tillinghast beat both the S each runs roughly 1% of the fund’s assets.)
But as is the case with Contrafund, we are wary of Low-Priced Stock’s size. It is the biggest actively managed medium-capitalization stock fund in the country (Morningstar categorizes Low-Priced as a mid-cap fund, but in fact it invests in companies of all sizes). An enormous asset base can hinder performance when a manager buys and sells stocks, especially small caps and mid caps. It’s hard to know if Low-Priced’s girth is responsible, but performance so far in 2016 hasn’t been so hot: In the first nine months of the year, Low-Priced Stock’s 5.3% return lagged 93% of its peers.
Low-Priced Stock has already adjusted its original mandate as assets have grown. It now invests primarily in stocks that sell for $35 or less at the time of purchase. It invests in more large companies than it used to. And it has ventured overseas, with foreign stocks accounting for 34% of its assets at last word.
Ten-year annualized total return: 6.9%
An untimely bet on energy stocks dampened this fund’s results in 2015, when it lost 3.1% and lagged 73% of funds that invest in fast-growing midsize companies. But manager John Roth likes to invest in out-of-favor stocks and industries, so his fund’s performance is sometimes out of sync with the market and its rivals. This year, for instance, his energy bet has paid off handsomely. In the first nine months of 2016, the fund returned 11.2%, placing it in the top 4% of its peer group.
Roth calls himself an opportunistic investor with a bias toward growth stocks. But he’ll snap up a good bargain if he sees a good prospect. His eclectic approach stems from his wide-ranging experience at Fidelity, which included stints running sector funds that focus (separately) on chemicals, utilities, consumer goods and media concerns.
We have confidence in Roth. He also runs Fidelity New Millennium (FMILX ), a member of the Kiplinger 25. Since he took over Mid-Cap Stock in early 2011, it has outpaced the typical fund that concentrates on growing midsize companies. However, it has lagged the S ?>