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Strategic Favorites from Fidelity

02/26/2014 10:00 am EST

Focus: FUNDS

Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

Fund expert Jim Lowell, editor of Fidelity Investor, highlights a trio of Fidelity's Strategic funds that rank among his "Best Buys." He also discusses a newly-launched fund that is focused on special situations.

Steve Halpern: Joining us today is mutual fund expert, Jim Lowell, editor of Fidelity Investor. How are you doing, Jim?

Jim Lowell: So far so good, Steve.

Steve Halpern: Although you cover the broad universe of Fidelity funds each month, one feature that you have in your newsletter offers investors your monthly "Best Buy" picks. Could you explain what your goals are with this section?

Jim Lowell: Many of our members follow our four model portfolios, but for members who are looking for, sort of, what I call, a strategic or tactical opportunity in your term trade to capitalize on, maybe an area that's under-represented in their portfolio or even in our overall diversified model portfolios, we have the monthly "Best Buys."

Often times, the picks inside of those monthly "Best Buys" can be there for one, two, three, six months, even longer if the trend holds up, and so, it really is a way for members to be able to fine tune their portfolio month to month, but, sometimes, you don't need fine tuning once you get that good sparkplug put in the engine.

Steve Halpern: Now, this month, among your "Best Buys," you include several funds that are called strategic funds. Could you explain how this particular group of funds fits within the overall Fidelity family?

Jim Lowell: Unique to Fidelity, these funds really take, as their name applies, a strategic approach rather than a fundamental long-term approach to the marketplace and economic environment in which we find ourselves.

So, there is a little bit more trading going on inside of these portfolios; some are more narrowly drawn in terms of their focus, but all tend to have a specific theme relating to them.

One theme is income—whether that's derived from bonds, real estate, commodity linked notes, or for dividend paying stocks, and another, really, is a way for income investors to be able to complement their existing positions with a position that is going to be able to perform relatively well in, what I would call, a growth oriented and potentially rising rate environment.

Steve Halpern: Now, one of your current best buys is Fidelity Strategic Real Return (US:FSRRX). Could you tell us about this fund?

Jim Lowell: You know's funny; when you say real return, what on earth could that mean? You really have to check under the hood of this one, and, for that matter, any fund, because the name is often confusing, if not misleading.

Here I would say it basically is relatively confusing; although, the concept of real return is typically associated with commodities and commodity investing, and commodity investing is typically associated with a hedge against inflation. This is a far more diversified approach to that inflationary theme.


It typically divides itself into four sleeves; inflation protected bonds, floating rate high-yield notes—these trade inside of 30, 60, 90 days and actually tend to benefit from rising rates—commodity linked notes that are a way for the manager to, basically, purchase positions in commodity behaving-like instruments, and then also in real estate investment trusts.

So, in this one fund, Real Return, you really are getting a remarkably well diversified way to hedge inflationary pressures.

Steve Halpern: Now, two other "Best Buys" you have sort of sound similar and maybe you could walk us through the differences; one is Fidelity Strategic Income (US:FSICX) and the second is Strategic Dividend & Income (US:FSDIX).

Jim Lowell: Very clear differences between the two funds. Strategic Income divides its asset mix among US government investment grade securities, emerging market bonds, foreign or sovereign developed market bonds on the whole, as opposed to Strategic Dividend & Income, which has a huge equity component inside it.

Typically, about 50% to 60% of its assets are in dividend paying stocks, primarily US dividend paying stocks, and then it divides the rest of its universe into real estate investment trusts, convertible securities, and preferred stocks.

So, when you combine a fund like Strategic Dividend & Income with Fidelity's Strategic Income and Fidelity's Strategic Real Return, you could, arguably, just go away and not worry about your portfolio for as long as a decade if what we are in is a growth-oriented, rising-inflation environment.

Steve Halpern: Now, on a slightly different topic—I noticed in your latest “Best Buys,” you included a new fund called Event Driven Opportunities (US:FARNX). I was wondering if you could tell our listeners a little about that.

Jim Lowell: So, Event Driven Opportunities is, as you say, a unique fund, new to Fidelity, and new, I would say, in terms of what one might be able to garner from other fund families.

Effectively, it's going to be trading upon news and insights gleaned from Fidelity's management and research team on the companies that they see as it relates to what's going on inside of the companies, with specific regard to things like mergers and acquisitions, news that may or may not negatively or positively impact the performance of those holdings.

So, it is, what I would call, a trend fund, in that it's really looking at the marketplace through one lens. It is new; we don't know what its holdings are yet. It's been trading for just about two and a half months.

We'll get our first glance at the actual underlying holdings in about 35 days from now, but it is interesting to note that, when Fidelity launches new funds, they have an above average track record of being able to outperform market benchmark and peer group, at least, in the first 12 months of their launch.

Steve Halpern: Well, thank you so much for taking the time, today. We really appreciate your insights.

Jim Lowell: Thank you.

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