Fidelity's Red-Hot Sector Funds
During the past five years, Fidelity Select Materials (FSDPX) returned 9.0% annually, compared to 3.2% for Materials Select Sector SPDR (XLB) . Fidelity Select Industrials (FCYIX) returned 8.3%, compared to 4.9% for Industrial Select Sector SPDR (XLI) .
Other Fidelity funds that surpassed competing SPDR ETFs by more than 2 percentage points include Fidelity Select Health Care (FSPH) , Fidelity Select Technology (FSPTX) , and Fidelity Select Biotechnology (FBIOX) .
The Fidelity funds are not newcomers. Fidelity was a pioneer in the sector business, introducing its first industry funds in the early 1980s. Today the company has 41 sector funds. The group includes such narrow choices as Fidelity Select Insurance (FSPCX) and Fidelity Select Chemicals (FSCHX) . Financial advisors have long used the sector funds to implement trading strategies. But in recent years, the Fidelity funds have been overshadowed by ETFs.
The ETFs have some clear advantages, including low expense ratios. The SPDR sector funds have expense ratios of around 0.18%, while the Fidelity funds charge about 0.81%. As actively managed portfolios, the Fidelity funds can sometimes miss the target. Fidelity Select Energy (FSENX) and Fidelity Select Consumer Staples (FDFAX) have trailed comparable SPDR funds.
But Fidelity's active managers have the freedom to overweight their top picks, an advantage that often results in strong results. A compelling choice is Fidelity Select Technology. During the past five years, the fund returned 9.3% annually, compared to 6.6% for Technology Select Sector SPDR.
The SPDR technology ETF is dominated by a handful of giant stocks, including Apple (AAPL) , International Business Machines ( IBM) , and Microsoft (MSFT) . Fidelity's portfolio manager Charlie Chai ranges more widely, buying small stocks and foreign issues as well as familiar blue chips.
Chai holds a mix that includes rapid growers as well as cyclical names that have fallen out of favor. A growth star in the fund has been Salesforce.com (CRM) , which delivers software from the cloud that can be used by companies to provide customer service. Chai says that the company can continue growing for a sustained period. "They are taking market share away from established software competitors like Oracle (ORCL) ," he says.
Chai aims to buy cyclicals when they are out of favor. A cyclical holding is Micron Technology (MU) , which makes semiconductors that are used for data storage.