Fidelity Investments offers a huge array of mutual funds, most of which are low-cost options with at least decent performance. But which are the best? That depends on your perspective, but some funds certainly stand out.
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Because Fidelity built its reputation as a stock-picking powerhouse, I'd argue that the best Fidelity mutual funds are the actively managed choices that have the best records of performance relative to their competition.
To build a list of the best, I started with all the Fidelity funds that currently have a five-star overall rating from Morningstar, meaning that they rank in the top 10% of their peer groups. Then I eliminated index funds, conservative fixed-income funds, and the funds from the Fidelity Select family that focus narrowly on one industry or sector.
That left nine strong choices. Here they are, ranked in descending order of their three-year average annual total returns as of April 30.
1. Fidelity OTC Portfolio
This fund's name dates back to the 1980s, when NASDAQ was still sometimes referred to as the "over-the-counter" market. Manager Gavin Baker aims to beat the performance of the NASDAQ Composite Index by picking the NASDAQ-listed stocks poised for "dynamic growth." The fund's three year average return of 21.3% handily beat the index's 19% over the same period.
About half the fund is in tech stocks, with big holdings in Apple , Amazon.com , Rackspace Hosting , and similarly prominent names. The fund's expense ratio of 0.77% is cheap-ish, and the turnover rate is a pretty ordinary 74%.
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2. Fidelity Mid Cap Value Fund
This fund seeks long-term capital growth by investing in midsized companies that manager Court Dignan believes to be undervalued. The fund's three-year average annual total return of 20.8% is well ahead of the benchmark Russell Madcap Value Index.
About a third of the Mid Cap Value Fund is in financial-sector stocks, with big positions in Capital One Financial and Blackstone Group , among others. Turnover isn't too high at 69%, and expenses are quite reasonable for the category at 0.83%.
3. Fidelity China Region Fund
While the Fidelity China Region Fund is more focused than the other funds on this list, I included it because it's a strong performer in an area where many investors are seeking greater exposure. Manager Bobby Bao seeks long-term growth by buying stocks from China, Hong Kong, and Taiwan, and he's been finding it: The funds' 20.2% three-year total return is well ahead of the 14.4% posted by the fund's benchmark, the MSCI Golden Dragon Index.
About 59% of the fund's holdings are from China proper, with the remainder roughly split between Hong Kong and Taiwan. Its biggest positions include Taiwan Semiconductor , AIA Group , and China Construction Bank . China Region Fund's expense ratio of 1% is actually quite low for a fund like this, though the turnover rate of 87% is a bit on the high side.
4. Fidelity Blue Chip Growth Fund
This basket of blue chips buys large-cap stocks that manager Sonu Kalra believes have "above-average growth potential." The fund's three-year average return of 18.9% beats the 16.6% posted by its benchmark, the Russell 1000 Growth Index.
About a third of the fund is in tech stocks, with big positions in companies like Apple, Google , and Facebook -- but it's also overweighted in consumer stocks like Home Depot . Turnover rate is a reasonable 43%, and the fund's expense ratio is a fairly low 0.80%.
5. Fidelity Contrafund
The Contrafund has long been one of the company's shining stars. Led by manager Will Danoff since 1990, Contrafund has posted market-beating performance for many years, and its average return over the last three years was 15.4%. That trails the benchmark S&P 500 Index a bit, but the fund's 10-year average of 10.3% is well ahead of the index.
Danoff is an old-school stock-picker: Contrafund has big holdings in Google, Apple, and Facebook, but its biggest holding is Warren Buffett's Berkshire Hathaway . Turnover of 45% is modest, and the fund's total expense ratio of 0.64% is quite reasonable.
6. Fidelity Balanced Fund
This fund is run by a team of 11 managers who seek "income and capital growth consistent with reasonable risk." The fund's holdings are roughly two-thirds stocks and one-third bonds, and it has returned an average of 12.2% over the last three years.
The Balanced Fund's biggest position is in Apple, but its next-biggest is in U.S. Treasuries -- and its other top holdings include several big financial firms. A high turnover rate of 131% is likely due to the bond portfolio, as expenses are low at just 0.56%.
7. Fidelity Puritan Fund
This is an old-timer among Fidelity's oldest funds, dating to 1947. It has long been positioned as a "growth and income" fund for more conservative-minded investors (hence the name), and its team of three managers keeps about 30% of the portfolio in bonds. Its three-year average annual total return is 12.1%.
Top holdings in its stock portfolio include Apple and Facebook, as well as some financials like JPMorgan Chase . On the bond side, it holds Apple and JPMorgan bonds, as well as a big position in U.S. Treasuries. Turnover is quite high at 111%, possibly due to the bond portfolio, but its expense ratio is a reasonable 0.56%.
8. Fidelity International Growth Fund
The International Growth Fund seeks growth from companies based outside of the U.S. Manager Jed Weiss looks to buy big companies with good growth prospects and solid moats at reasonable prices -- a solid strategy. The fund's three-year average annual return of 10.9% is a bit ahead of the 10.8% posted by its benchmark, the MSCI EAFE Growth Index.
The fund is fairly well balanced compared to its benchmark, with a modest overweighting in healthcare stocks like Novartis and Roche Holding . The fund's expense ratio of 1.04% is on the low side for an international fund, and the very low turnover rate of just 27% suggests that Weiss holds his best ideas for a long time. Not only is that a sensible investing approach, but it also keeps the fund's costs down.
9. Fidelity Capital & Income Fund
This last fund is an interesting beast: a mutual fund that specializes (mostly) in junk bonds. Manager Mark Notkin has run the fund since 2003, and he looks for companies that have low credit ratings (and thus high-yielding bonds) -- but also good management that is looking to turn things around. The fund has returned an average of 9.3% per year over the last three years. Its 30-day yield was 3.7% as of April 30.
The fund's top issuers include T-Mobile and Ally Financial , but the full list is a long one -- the fund held bonds from 458 different issuers as of March 31. Its expense ratio of 0.71% and turnover rate of 45% are both modest for a fund of this type.
It all comes down to what you need
Any one of the funds above could make a great addition to a diversified portfolio. If you're a fan of Fidelity's offerings and you're looking for exposure to a particular corner of the market, then you should consider these benchmark-beating mutual funds.
The article The Best Fidelity Mutual Funds originally appeared on Fool.com.
John Rosevear owns shares of Amazon.com, Apple, and Facebook. The Motley Fool recommends Amazon.com, Apple, Facebook, Google (A shares), Home Depot, and Rackspace Hosting. The Motley Fool owns shares of Amazon.com, Apple, Facebook, Google (A shares), and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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