Recent, Short-Term Returns Are Highest For Bonds And Utilities

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Includes: FDFAX, FGMNX, FGOVX, FIBAX, FINPX, FIUIX, FLBAX, FMSFX, FSAGX, FSITX, FSIYX, FSTGX, FSUTX
by: Anthony Cataldo

Summary

Relatively high returns from equities may be overtaken by debt and utility sectors or segments of the economy.

There is already evidence of this shift from equities to debt. The 1# trading rule is “don’t fight the Fed” or interest rate increases.

This article examines the “Top 10” performing Fidelity funds (N=208), focusing on the past (1) 1 month and (2) 3 months, both ending January 31, 2016.

A “nibble” in these funds or sectors or specific stocks may be warranted, now, if you expect the Fed to raise interest rates during 2016.

The objective, as always, is to identify the best of the best, where Fidelity or comparable, competing mutual funds may warrant entry and long-term buy-and-hold positions.

I am long Fidelity Spartan® Long Term Trust Bond Index Fund [FLBAX]. Comparable funds may be available through your employer.

The tide may be shifting. As financial experts and pundits anticipate several additional interest rate increases from the Federal Reserve (Fed) in 2016, equities are declining and debt will attract more capital, at the margin. In my case, I am restricted to a population of N=208 debt and equity funds for my Fidelity 403B plan contributions. In this article, I examine some very recent returns and/or trends that might prove useful to others, also, periodically rebalancing their portfolio as economic conditions favor varying sectors or segments of the economy over time.

Click to enlarge

Are We Entering A Long-Term Bear Market?

Prior to calendar year end, it was not unusual to hear financial experts speculate at 4 Fed rate increases through 2016. Many of these experts appear on CNBC and Bloomberg and more recent estimates appear to be in the 2 Fed rate increases for 2016 range. As interest rates rise and commodity prices fall (e.g., oil), pricing power and revenues ("top line" growth) becomes sluggish and equity earnings ("bottom line" growth) are "at risk."

A chart of the S&P 500 200-day moving average, through January 2016, follows:

Source: CNBC

Don't Fight the Fed!

The first trading rule, for debt v. equity investment decisions, is "don't fight the Fed." Equities have enjoyed a 6 to 7 year run through several rounds of "quantitative easing," and, if the course reverses, however gradually, a rebalancing of your portfolio easing out of equity and into blended or debt investment alternatives may warrant some "nibbling." This is what appears to be occurring, whether short-lived or long-term, as I investigated those Fidelity funds available to me for my 403B plan contributions. I focused on the Top 10 funds for the 1 month and 3 months ending January 31, 2016.

Top 10 Fidelity Funds - 1 Month Ending January 31, 2016

The top 10 performing Fidelity funds, for the 1 month ending January 31, 2016, follow:

Name

Ticker

Asset Class

Category

1 Month

3 Months

Returns at

1

SPTN LT TR IDX ADV

(MUTF:FLBAX)

Bond

Income

5.3%

4.1%

31-Jan-16

2

FID SEL GOLD

(MUTF:FSAGX)

Stock

Specialty

3.6%

-3.4%

31-Jan-16

3

SPTN INT TR IDX ADV

(MUTF:FIBAX)

Bond

Income

2.9%

2.1%

31-Jan-16

4

FID SEL UTILITIES

(MUTF:FSUTX)

Stock

Specialty

2.9%

1.1%

31-Jan-16

5

FID TELECOM & UTIL

(MUTF:FIUIX)

Stock

Specialty

2.0%

1.2%

31-Jan-16

6

FIDELITY GOVT INCOME

(MUTF:FGOVX)

Bond

Income

1.8%

1.2%

31-Jan-16

7

SPTN INFL PR IDX ADV

(MUTF:FSIYX)

Bond

Income

1.7%

0.5%

31-Jan-16

8

FID INFLAT PROT BOND

(MUTF:FINPX)

Bond

Income

1.7%

0.4%

31-Jan-16

9

FID INTM GOVT INCOME

(MUTF:FSTGX)

Bond

Income

1.4%

0.8%

31-Jan-16

10

SPTN US BOND IDX ADV

(MUTF:FSITX)

Bond

Income

1.4%

0.7%

31-Jan-16

Click to enlarge

Note that only n=3 of the above N=10 are classified as "stock" funds and n=2 are utilities.

Top 10 Fidelity Funds - 3 Months Ending January 31, 2016

The top 10 performing Fidelity funds for the 3 months ending January 31, 2016, follow:

Name

Ticker

Asset Class

Category

1 Month

3 Months

Returns at

1

SPTN LT TR IDX ADV

Bond

Income

5.3%

4.1%

31-Jan-16

2

SPTN INT TR IDX ADV

Bond

Income

2.9%

2.1%

31-Jan-16

3

FID SEL CONS STAPLES

(MUTF:FDFAX)

Stock

Large Cap

-0.9%

1.8%

31-Jan-16

4

FID TELECOM & UTIL

Stock

Specialty

2.0%

1.2%

31-Jan-16

5

FIDELITY GOVT INCOME

Bond

Income

1.8%

1.2%

31-Jan-16

6

FID SEL UTILITIES

Stock

Specialty

2.9%

1.1%

31-Jan-16

7

FID MORTGAGE SEC

(MUTF:FMSFX)

Bond

Income

1.3%

1.0%

31-Jan-16

8

FID GNMA

(MUTF:FGMNX)

Bond

Income

1.0%

0.9%

31-Jan-16

9

FID INTM GOVT INCOME

Bond

Income

1.4%

0.8%

31-Jan-16

10

SPTN US BOND IDX ADV

Bond

Income

1.4%

0.7%

31-Jan-16

Click to enlarge

Note that only n=3 of the above N=10 are classified as "stock" funds and the same n=2 are utilities.

Top Fidelity Funds - N=7 Included in Both 1 Month & 3 Month Top 10

The top N=7 performing Fidelity funds common to both the 1 month and the 3 month "Top 10" ending January 31, 2016, tables follow:

Name

Ticker

Asset Class

Category

1 Month

3 Months

Returns at

1

SPTN LT TR IDX ADV

Bond

Income

5.3%

4.1%

31-Jan-16

2

SPTN INT TR IDX ADV

Bond

Income

2.9%

2.1%

31-Jan-16

3

FID SEL UTILITIES

Stock

Specialty

2.9%

1.1%

31-Jan-16

4

FID TELECOM & UTIL

Stock

Specialty

2.0%

1.2%

31-Jan-16

5

FIDELITY GOVT INCOME

Bond

Income

1.8%

1.2%

31-Jan-16

6

FID INTM GOVT INCOME

Bond

Income

1.4%

0.8%

31-Jan-16

7

SPTN US BOND IDX ADV

Bond

Income

1.4%

0.7%

31-Jan-16

Click to enlarge

The only n=2 "stock" funds common to both of the 1 month and the 3 month "Top 10" are utilities funds. The #1 fund is [FLBAX] for both 1 month and 3 month periods, respectively, ending on January 31, 2016, follows:

For 1 month:

For 3 months:

10-Year Charts for the Top 7 of the Top 10s

10-year charts for those securities included in both of the above "Top 10" tables follows:

For [1] FLBAX: There was little or no reaction, relatively, to the "housing crisis" and crash for this fund. Long-term returns have been favorable.

For [2] FIBAX: There was little or no reaction, relatively, to the "housing crisis" and "crash" for this fund. Long-term returns have been favorable. I considered buying into this "second place" fund.

For [3] FSUTX: This fund experienced an abrupt reaction, mirroring that for equities during the "housing crisis" or "crash," though long-term returns have been favorable.

For [4] FIUIX: This fund experienced an abrupt reaction, mirroring that for equities during the "housing crisis" or "crash," though long-term returns have been favorable.

For [5] FGOVX: There was little or no reaction, relatively, to the "housing crisis" and crash for this fund, but long-term returns have been relatively low.

For [6] FSTGX: There was little or no reaction, relatively, to the "housing crisis" and crash for this fund, but long-term returns have been relatively low.

For [7] FSITX: There was a relatively modest reaction to the "housing crisis" and crash for this fund, but long-term returns have been relatively low.

Summary

Buying and holding the "best of the best," long-term, has been the topic of this article. Do not sell your equities, but consider putting "new money" to work in bond or blended funds.

Energy prices have declined and monopolistic utilities are regulated, passing on costs to consumers with a guaranteed rate of return, usually based on the capital asset pricing model [CAPM]. For those preferring equities, utilities (above) should be examined.

I will monitor debt v. equity instruments for early signs and stages of a long-term shift from equity to debt instruments for higher returns. We have little or no inflation, unlike the early 1980s, so a meteoric rise in interest rates, significantly favoring debt over equity, is not anticipated, but a "nibble" and modest rotation out of equity and into a bit of debt is warranted.

Disclosure: I am/we are long FLBAX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.