Top Picks 2016: Fidelity Favorites

01/18/2016 7:00 am EST

Focus: FUNDS

Jack Bowers

Editor, Fidelity Monitor & Insight

In 2016, growth-oriented investors should focus on blue chip stocks while income investors should look at high quality corporate bonds, notes Jack Bowers, editor of Fidelity Monitor & Insight.

Our Top Pick for growth is Fidelity Blue Chip Growth (FBGRX). Manager Sonu Kalra has a good handle on technology disruption and how it is creating winners and losers.

In addition to a 37% technology weighting he is also betting heavy on consumer stocks (26%), which we see benefiting from permanently reduced energy prices. US consumers usually wait nine months before spending their energy savings, so that benefit is just now kicking in.

Kalra has minimal exposure to energy stocks (1.3%)—which is a plus—and he is not excessively exposed to the health care group (17%), which is now fully valued and increasingly volatile.

In short, Fidelity Blue Chip Growth is a solid bet at a time when inflation is low, value stocks are struggling, and a handful of disrupter companies are enjoying strong earnings growth.

Our Top Pick for conservative investors is Corporate Bond (FCBFX). This fund has a higher yield and longer duration (6.7) than most investment grade bond funds, but is not exposed to growing credit risks in the high yield sector.

Moreover, because the Fed is moving pre-emptively without any real signs of inflation, long-term interest rates may actually decline in 2016 if the Open Market Committee insists on pushing short-term interest rates up by a full percentage point in 2016.

This is not the 1980s, so there is very little risk of a wage spiral. There’s a huge base of stealth labor, as evidenced by the low workforce participation rate and the age of robotics is practically upon us. The unions lack any ability to demand double-digit wage increases year in and year out.

With the Fed on an unjustified hawkish kick, the main risk in 2016 is that the yield curve may flatten, benefiting longer maturity bond funds.

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