Fidelity Investments, most famous for its Magellan Fund, has supplied products to investors for more than 70 years. Today, Fidelity manages $2.5 trillion in assets, which makes it one of the largest financial firms in the world. The company offers an impressive array of mutual fund options for investors of all skill levels and risk tolerances.
- Best Overall: Fidelity Total Market Index Fund (FSKAX)
- Best for Domestic Equity: Fidelity 500 Index Fund (FXAIX)
- Best International Fund: Fidelity International Index Fund (FSPSX)
- Best for Fixed Income: Fidelity U.S. Bond Index Fund (FXNAX)
- Best Actively-Managed Fund: The Contrafund (FCNTX)
- Best New Fund: Fidelity ZERO Total Market Index (FZROX)
What are Fidelity Mutual Funds?
Fidelity was a trailblazer in many respects; the company was one of the first mutual fund companies to offer 401(k) and 403(b) services and launched the first investment webpage in 1995. Over the last few decades, Fidelity has expanded to provide retirement planning services, wealth management, and life insurance products, but its bread and butter remains brokerage services and mutual funds. Fidelity has two mutual funds known around the investment world: the Contrafund and the Magellan fund.
The Contrafund (FCNTX) is a $112 billion behemoth that began trading in 1967. For the last 27 years, the fund has been managed by William Danoff, who has consistently beaten his peers (and in recent years, the S&P 500). Contrafund is classified as a large growth mutual fund. Amazon and Facebook made up over 13% of the fundâ€™s holdings as of September 30.
Magellan might be the most famous mutual fund in the world. Introduced in 1963, Magellan rose to fame during Peter Lynchâ€™s amazing 13-year run as manager. Between 1977 and 1990, Lynch averaged a 29% annual return, blowing away the S&P 500 and making jealous rivals out of every asset manager in the country. Lynch started with $18 million in assets in 1977 and by the time he bowed out in 1990, the fund had grown to $14 billion.
Magellan handily beat Vanguardâ€™s S&P 500 mutual fund over the course of Lynchâ€™s term as manager
Pros and Cons of Fidelity Mutual Funds
Weigh the pros and cons of Fidelity mutual funds before you commit to purchase. For a more in-depth look at Fidelity, read Benzinga’s Fidelity Investments Review.
Pros of Fidelity Mutual Funds
- Low fees: Fidelity mutual funds often rival the low-fee options of Vanguard or Charles Schwab. For example, Fidelityâ€™s S&P 500 index fund (FXAIX) carries a 0.015% net expense ratio and there is no minimum investment requirement. Vanguardâ€™s S&P 500 mutual fund (VFINX) carries a 0.14% net expense ratio.
- Strong management: The Johnson family, which has been guiding Fidelity for over 70 years, has made some home run hires in Lynch and Danoff. Fidelity is a name investors trust.
- Variety of investment options: Fidelity offers mutual funds in every corner of the market. As of this writing, 288 mutual funds are open to new investors, including some which track real estate and commodities benchmarks. Even risk-averse investors have options with money market and bond funds.
Cons of Fidelity Mutual Funds
- Not enough index funds: Of the 288 Fidelity mutual funds open to new investors, 235 are actively managed and 53 are indexed. Yes, Lynch and Danoff are worth the extra fees, but most active managers still fail to beat index funds.
- International funds are expensive: Fidelity has six international index funds and 25 actively-managed international funds. The index funds offer competitive fees, but the cheapest active fund charges a 0.59% net expense fee.
- Ethics issues: The news hasnâ€™t always been pleasant out of Boston, and Fidelity has found itself in the center of a few controversies over the years. Recently, it was found that that Fidelityâ€™s venture wing has private funds that compete with Fidelityâ€™s publicly-available mutual funds.
Attributes of the Best Fidelity Mutual Funds
Whatâ€™s our methodology for determining the best Fidelity mutual funds? Each of the funds on this list will meet some of the criteria listed below:
- Low expense ratios
- Preference for index funds over actively-managed funds
- Create a portfolio foundation
The best Fidelity mutual funds can help investors build up a strong portfolio for costs as low as anyone in the industry. Keep these things in mind when considering an asset allocation for your portfolio.
The Best Fidelity Mutual Funds
Using the above criteria, Benzinga found plenty of great low-cost funds that investors of any age could use as foundational holdings. Hereâ€™s a look at the top six choices.
1. Best Overall: Fidelity Total Market Index Fund (FSKAX)
If youâ€™re looking for a foundational fund, you couldnâ€™t do much better than Fidelityâ€™s Total Market Index Fund, which trades under the ticker FSKAX. The fund invests 80% of its assets in the Dow Jones U.S. Total Stock Market Index, a benchmark composed of the 5,000 largest American companies.
Currently, the fund holds 3,405 common stocks, 20% of which are technology companies. Health care and financials are the next largest concentrations, at 14.5% and 13.7%. However, the best feature of the fund is its price. With a net expense ratio of 0.015%, investors will only pay $1.15 in fees on a $10,000 investment. Since its inception in 1997, Fidelity has built FSKAX to be a core holding in long-term portfolios. It provides broad U.S. market exposure at a fraction of the price of its competitors.
2. Best for Domestic Equity: Fidelity 500 Index Fund (FXAIX)
Fidelity 500 Index Fund (FXAIX) [last paragraph]: FXAIX has a 1-year return of 50.48%, a 3-year return of 18.69% and a 5-year return of 14.25%. It is an excellent fund for investors that are just starting with low expenses and minimums.
In the last decade, FXAIX has had a return of 11.96%, nearly identical to the 11.97% returned by the S&P 500. Since its inception in 1988, the fund has returned 10.49% versus 10.64% for the S&P 500, so the tracking errors have been minimal over the last 30 years. With no minimums, low expenses and a track record of matching its benchmark, the Fidelity 500 Index Fund is a great starting point for any investment account.
3. Best International Fund: Fidelity International Index Fund (FSPSX)
Many of Fidelityâ€™s international mutual funds carry high price tags, but the International Index Fund is not one of them. The expense ratio is modest at 0.045% ($4.50 on a $10,000 investment) and fund invests 100% in developed markets. The fund tracks the MSCI Europe, Australasia, and Far East Index, a benchmark designed to give investors unique access to markets outside North America.
The fund attempts to hold all securities in the index at their market weights, as long as itâ€™s financially feasible. Japan, the United Kingdom, and France are the countries with the largest concentration of stocks in the fund. Over 63% of the stocks purchased are from European countries, and Nestle, Novartis, and HSBC comprise the top three holdings. FSPSX is a great fund for investors looking to add developed market exposure to their portfolios.
4. Best for Fixed Income: Fidelity U.S. Bond Index Fund (FXNAX)
Not interested in equities? Fidelity has plenty of fixed income options for risk-averse investors and the best of the bunch is the Fidelity U.S. Bond Index Fund. Using the Bloomberg Barclays U.S. Aggregate Bond Index as a benchmark, the fund attempts provide exposure to a wide range of bonds across different issuers and industries.
At a 0.025% expense ratio, the fund is cheaper than Vanguardâ€™s Total Bond Market Index Fund (0.04%). U.S. Treasuries make up just over 40% of the fundâ€™s holdings, with corporate and MBS pass-through bonds that comprise 23% and 27%. Only 10% of the fundâ€™s bond holdings are below A-rated. Thereâ€™s no minimum to invest, which makes this fund a great starting point for investors looking for exposure to the U.S. bond market.
5. Best Actively-Managed Fund: The Contrafund (FCNTX)
We like to recommend index funds in these articles since few managers have proven they can beat the market over time, but if you insist upon paying up for a manager, choose William Danoff and the Contrafund.
Contrafund has been trading for over 50 years and Danoff has covered the second half of that period all himself. If you had invested $10,000 in Contrafund a decade ago and left it untouched, youâ€™d have about $37,000 today. In the same time frame, $10,000 in the S&P 500 wouldâ€™ve returned about $34,000. However, Contrafund has lagged the S&P for the last two years; Danoffâ€™s magic might be wearing off. Still, the 0.74% expense ratio is fair for this type of fund and Danoff has proven superior to Magellanâ€™s managers since Peter Lynch left.
6. Best New Fund: Fidelity ZERO Total Market Index (FZROX)
Fidelity has waded into uncharted waters with the release of its ZERO mutual fund, a group of securities with non-existent expense ratios. In other words, the Fidelity ZERO Total Market Index fund has a 0.00% net expense ratio.
The fund began trading on August 8 of this year, so thereâ€™s little data to use on a chart for comparisons. On the surface, the fund looks likes a standard stock market index. It tracks the Fidelity U.S. Total Investable Market Index and holds over 2,500 common stocks of large-, mid-, and small-cap American companies. Using a proprietary stock index, Fidelity is able to avoid fees from index makers like Standard and Poor or Dow Jones and can pass those savings on to investors.
Zero expense funds could be a game changer for Fidelity. Even the smallest fees can eat away thousands of dollars over a 30-year investment horizon, so a zero-cost fund has the potential to revolutionize the market (provided that Fidelityâ€™s internal indexes can match the major ones).
Fidelity has always been an investment pioneer and its mutual funds have some of the most competitive costs in the industry. Whether you want to invest domestically or abroad, in equities or fixed income, with passive or active management, Fidelity has a fund to meet your goals. Now, with zero expense fees now on the market, they may have a leg up on all other asset managers.