As you consider making or updating your 401(k) fund selections, the abundance of choices, complex fund names and myriad objectives can be overwhelming.
It might seem logical to simply sort available funds by their past performance and choose the ones at the top of the list. After all, who wants to invest in a fund that isn’t winning?
However, picking funds based solely on recent performance can be a trap. This tendency, known as recency bias, can cause investors to lose sight of the underlying fundamentals that are essential for long-term success.
“It’s important to remember that choosing winning sectors of the past is easy, but it’s much harder to know the future,” says Allen Mueller, director of financial planning at investment advisory firm 7 Saturdays Financial. “Dumping money into the winners of the last decade means you’re deliberately buying what is now expensive compared to the rest of the market, which bodes poorly for expected returns.”
What truly matters for the future health of your retirement portfolio are factors within your control: ensuring proper diversification to mitigate risk, minimizing fees to maximize returns and selecting tax-efficient funds to keep more of your hard-earned money working for you.
Beyond these factors, it’s also essential to do a deep dive into a fund’s underlying assets. For equity funds, this means assessing the geographic and sector exposure.
Geographic exposure matters because different regions may offer varying growth potential and carry distinct risks. Sector exposure is critical because each sector — like technology, health care and finance — responds differently to economic cycles.
Volatility, which indicates how wildly a fund’s value can swing, is another important metric for equity funds. Funds with high volatility can offer greater returns but also present more risk, which might not be suitable for every investor’s risk tolerance, especially as they near retirement.
That being said, it can still be beneficial for both novice and experienced investors to analyze top-performing funds to glean insights into what drove their success. Was it astute stock selection, superior portfolio management or simply being in the right market at the right time?
Learning from the past performance of successful funds can offer valuable lessons about navigating business cycles, choosing stocks and managing a diversified portfolio — skills that are indispensable for long-term investment success.
Here are eight of the best-performing Fidelity mutual funds, ranked in ascending order by their trailing 10-year annualized returns as of Oct. 31:
| Fidelity Fund | 10-Year Annualized Return (As of Oct. 31) |
| Fidelity Select Health Care Services Portfolio (ticker: FSHCX) | 12.9% |
| Fidelity Growth Discovery Fund (FDSVX) | 13.6% |
| Fidelity NASDAQ Composite Index Fund (FNCMX) | 13.7% |
| Fidelity Blue Chip Growth Fund (FBGRX) | 14.6% |
| Fidelity OTC Portfolio (FOCPX) | 15.1% |
| Fidelity Select Software and IT Services Portfolio (FSCSX) | 16.2% |
| Fidelity Select Technology Portfolio (FSPTX) | 17.7% |
| Fidelity Select Semiconductors Portfolio (FSELX) | 23.4% |
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Fidelity Select Health Care Services Portfolio (FSHCX)
The health care sector has historically offered investors a blend of stability and competitive returns, often being considered a “best of both worlds” investment. For the former, health care tends to exhibit lower volatility compared to the broader market due to the non-cyclical nature of health care demand; after all, medical services are essential regardless of the economic climate.
Additionally, structural trends such as an aging population, advances in medical technology and increasing health care spending have consistently propelled growth within this sector over the past decade. The effects of this can be seen with FSHCX, which has returned 12.9% annually over the past decade despite facing drag from a fairly high 0.73% expense ratio.
Fidelity Growth Discovery Fund (FDSVX)
“Growth stocks are those that are growing or are expected to grow earnings at an above-average rate, for which investors are willing to pay a premium,” says Daniel Dusina, director of investments at wealth management firm Blue Chip Partners Inc. “The last 10 years, which consisted of ultra-low interest rates and a relatively stable domestic economy, aligned well for growth stocks.”
One of Fidelity’s top-performing growth funds is FDSVX. Unlike passive funds that track an index, FDSVX actively picks stocks based on Fidelity’s proprietary research. The fund currently has an active share of 59.4%, meaning that over half of the fund’s assets are invested in stocks differing from its benchmark, the Russell 3000 Growth Index. FDSVX has posted a compound annual growth rate of 13.6% over the past decade and charges an expense ratio of 0.83%.
Fidelity NASDAQ Composite Index Fund (FNCMX)
“Overall, growth and information technology have come to dominate the U.S. market over the trailing 10-year period,” Dusina says. “Funds with high exposure to tech heavyweights such as Apple Inc. (AAPL), Alphabet Inc. (GOOG, GOOGL), Microsoft Corp. (MSFT) and Nvidia Corp. (NVDA) were rewarded with market-leading returns.” For exposure to these stocks, investors can target the Nasdaq composite index.
This index is similar to its more concentrated cousin, the Nasdaq-100, in terms of top holdings, but is overall much broader in scope. Thus, a Nasdaq composite fund like FNCMX will also hold many mid- and small-cap Nasdaq-listed stocks, albeit in lower proportions due to its market-cap-weighted methodology. The fund charges a 0.3% expense ratio and has returned 13.7% annually over the past 10 years.
Fidelity Blue Chip Growth Fund (FBGRX)
Investors wishing to focus on the largest and most prominent growth stocks can opt for FBGRX, which specifically targets blue-chip stocks that exhibit growth styles. This fund defines a blue-chip stock as one that is “well-known, well-established and well-capitalized.” It is one of Fidelity’s oldest actively managed funds, with a performance track record dating back to 1987.
Today, FBGRX’s portfolio is largely dominated by technology stocks, at around 40%. “This growth fund has significant exposure to technology, as that is the sector in which earnings have generally grown the fastest over the last 10 years,” Dusina says. FBGRX has returned 14.6% over the past decade and charges a 0.69% expense ratio. It can also be found in ETF form as the Fidelity Blue Chip Growth ETF (FBCG).
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Fidelity OTC Portfolio (FOCPX)
The term “OTC,” or “over the counter” can evoke images of risky and shady penny stocks. However, the over-the-counter market is also home to a range of reputable international companies. These established firms often choose to list OTC as a strategic move to avoid the significant expenses and stringent regulatory demands associated with being on major exchanges like the New York Stock Exchange or Nasdaq.
For some exposure to these OTC stocks, Fidelity offers FOCPX. The bulk of this fund is invested in stocks traded on the Nasdaq, giving it a high technology tilt of around 43%. However, the fund is also able to target OTC and U.S. -exchange-listed foreign stocks, such as Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), the fund’s ninth-largest holding at present. FOCPX has returned 15.1% over the past decade and charges a 0.79% expense ratio.
Fidelity Select Software and IT Services Portfolio (FSCSX)
Fidelity’s “Select” series offers investors an opportunity to focus their investments on specific industries, allowing for targeted exposure that extends beyond the standard 11 market sectors. A standout fund within this series is FSCSX, which has returned 16.2% annualized over the past 10 years. This fund is also long-standing, with a track record dating back to 1985.
FSCSX captures a variety of businesses engaged in the development and production of software, and it also captures dynamic and rapidly growing segments such as cloud computing, customer relationship management, artificial intelligence and cybersecurity. As with the previous funds, FSCSX has a large-cap growth tilt with a focus on U.S.-listed companies. The fund charges a 0.69% expense ratio.
Fidelity Select Technology Portfolio (FSPTX)
The aforementioned FSCSX is a fairly concentrated industry-specific fund that leaves out other components of the technology sector, such as hardware manufacturers and semiconductors. For a broader approach to investing in the technology sector, investors can opt for FSPTX. Over the past 10 years, this fund has outperformed FSCSX, returning an annualized 17.7% net of its 0.7% expense ratio.
“Along with growth stocks outperforming value stocks over the last decade, we also saw a lot of tech sector development that fueled the rise in valuations,” says Anessa Custovic, chief investment officer at Cardinal Retirement Planning Inc. Fidelity rates this fund as higher risk, and it carries a beta of 1.25, meaning that it is about 25% more volatile than the broader market.
Fidelity Select Semiconductors Portfolio (FSELX)
FSELX stands out as the top-performing fund on this list, with a fantastic 23.4% 10-year annualized return, having capitalized on several consecutive tailwinds in recent years. Its success can be attributed in part to a surge in demand for technology products and services, spurred by the shift to remote work and entertainment during the start of the Covid pandemic in 2020.
Additionally, the fund saw gains during the 2021 cryptocurrency bull market due to high demand for graphics processing units, which are crucial for mining. Moreover, throughout 2022 and continuing into 2023, there has been a consistent demand for advanced semiconductors to power artificial intelligence applications, further driving growth. The fund charges a 0.69% expense ratio.
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8 Top-Performing Fidelity Funds for Retirement originally appeared on usnews.com
Update 11/07/23: This story was previously published at an earlier date and has been updated with new information.
