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15 Top Performing Fidelity Funds In Q3 2015

The performance of Fidelity mutual funds fell in the third quarter from the second quarter and mirrored the broader trend of declining returns in July-September 2015. The third quarter of 2015 ended up giving the worst performance for the benchmarks since Sep 2011. In the third quarter, the Dow, S&P 500 and Nasdaq declined 7.6%, 7% and 7.4%, respectively. Obviously, it was difficult for mutual funds as well. In fact, calling the third quarter a bloodbath will not be far from the truth. Just 17% of mutual funds managed to finish in the green in the third quarter. This was a slump from 41% in the second quarter, which was also a sharp fall from 87% of the funds that ended in the positive territory in the first quarter. Reflecting the broader trend of slumping returns, Fidelity’s top-gainer in the third quarter, Fidelity Spartan Long Treas Adv (MUTF: FLBAX ), could post only 5.5% return. In fact, except for this fund’s Investor class fund, Fidelity Spartan Long Treas Inv (MUTF: FLBIX ), there was no other that managed a 5% plus gain. The majority of gainers in the third quarter posted flimsy returns of 1-2%. However, FLBAX’s gain of 5.5% helped Fidelity to beat other key fund families, which we will discuss later. Fidelity’s Performance in Q3 vs. Q2 Out of the 971 funds we studied, just 111 funds managed to finish in the green. However, the gains were very modest as all these funds posted an average gain of 1.2%. In comparison, 504 funds out of 950 funds had finished in the positive territory in the second quarter. But the larger concern here is that while only 22 funds suffered above 5% loss in the second quarter, 655 funds ended the third quarter with more than 5% negative returns. Out of the 857 funds that finished in the red in the third quarter, 189 funds lost at least 10%. The average loss for these 857 funds was a worrying 8%. (Note: These numbers include same funds of different classes). The biggest loser among the Fidelity funds in the third quarter was Fidelity Adv China Region C (MUTF: FCHKX ), which nosedived 26.3%. This is completely in contrast to what happened in the second quarter, when Fidelity’s best gainer Fidelity China Region Fund (MUTF: FHKCX ) added 11.6%. China region funds were robust gainers in the second quarter and the country was the third-best category performer in the first half of 2015 as well. However this time, the worst performer is the China category. This is a result of the market rout that the China region suffered since mid June. In fact, China-led global growth worries were primarily responsible for the market rout in key markets across the globe; eventually pushing most mutual funds lower. Also, the 11.6% gain from FHKCX had helped Fidelity to beat other prominent fund families like Vanguard, BlackRock and American Funds to mention a few in the second quarter. In the third quarter, Fidelity failed to beat Vanguard, the best gain of which hit 8.4% by Vanguard Extended Duration Treasury Index Fund Institutional (MUTF: VEDTX ). In a quarter ravaged by headwinds, mutual funds from the Vanguard Group gave a decent performance. However, Fidelity managed to beat both BlackRock and American Funds. From the American Funds stable, American Funds US Govt Sec R5 (MUTF: RGVFX ) was the best performer with timid gains of 1.7% in the quarter. BlackRock’s best performer was Blackrock US Real Estate Sec Str I (MUTF: BIREX ), which gained 2.4%. Franklin Templeton’s best gainer also belonged to the Real Estate category. Franklin Real Estate Sec R6 (MUTF: FSERX ) gained 3.4%, falling short of Fidelity. Watch out for our Mutual Fund Commentary section in the coming days, wherein we will be reporting on performances and best picks from fund families and varied categories. Top 15 Fidelity Funds in Q3 Below we present the top 15 Fidelity funds with best returns in 3Q 2015: Fund Name Objective Description Q3 Total Return Q3 % Rank vs Obj YTD Total Return % Yield Expense Ratio Beta vs S&P 500 Load Fidelity Spartan Long Treas Inv Government 5.49 1 – 2.55 0.2 -0.06 N Fidelity Select Retailing Other 3.17 1 9.78 0.22 0.81 1.03 N Fidelity Spartan Rl Est Index Inv Real Est 2.84 10 -3 2.25 0.23 0.53 N Fidelity Real Estate Investment Real Est 2.76 12 -2.7 1.62 0.78 0.51 N Fidelity Spartan Inter Treas Inv Government 2.59 4 2.98 1.79 0.2 -0.01 N Fidelity Adv CA Muni Inc A Muni CA 1.7 37 1.69 2.87 0.79 -0.02 Y Fidelity Adv NY Muni Income A Muni NY 1.59 23 1.91 2.69 0.78 -0.03 Y Fidelity Series Real Estate Eqty Real Est 1.59 40 -3.65 1.56 0.75 0.54 N Fidelity Adv Muni Income A Muni Natl 1.49 26 1.32 3.14 0.8 -0.01 Y Fidelity Adv Real Estate Fund A Real Est 1.44 41 -3.93 1.27 1.11 0.55 Y Fidelity Government Income Fund Government 1.41 10 1.33 1.35 0.45 -0.01 N Fidelity Adv Government Income A Government 1.33 11 1.09 1.04 0.77 -0.01 Y Fidelity Mortgage Securities Govt-Mtg 1.32 11 1.78 2.14 0.46 0.01 N Fidelity Spartan US Bond Index Inv Corp-Inv 1.28 3 0.99 2.28 0.22 – N Fidelity Adv Mortgage Secs A Govt-Mtg 1.24 16 1.51 1.79 0.82 0.01 Y Note: The list excludes the same funds with different classes, and institutional funds have been excluded. Funds having minimum initial investment above $5000 have been excluded. Q3 % Rank vs Objective* equals the percentage the fund falls among its peers. Here, 1 being the best and 99 being the worst. The best 15 Vanguard mutual fund performers are primarily from three varied categories. These are Government Bond, Real Estate and Municipal Bond mutual funds. This was expected, as Long Government was the second best performing category in the third quarter, according to Morningstar. From this category, four funds made it to the best gainers’ list. These are Fidelity Spartan Long Treas Inv, Fidelity Spartan Inter Treas Inv (MUTF: FIBIX ), Fidelity Government Income Fund (MUTF: FGOVX ) and Fidelity Adv Government Income A (MUTF: FVIAX ). While FLBIX and FIBIX carry a Zacks Mutual Fund Rank #1 (Strong Buy), FGOVX and FVIAX carry a Zacks Mutual Fund Rank #2 (Buy). Meanwhile, Fidelity Mortgage Securities (MUTF: FMSFX ) and Fidelity Adv Mortgage Secs A (MUTF: FMGAX ) from the Government Mortgage category also found a place in the list. Both FMSFX and FMGAX carry a Zacks Mutual Fund Rank #1. Separately, many sub Municipal fund categories, such as Muni California Long, Muni Pennsylvania and Muni New York Long, featured in the top performers’ list for the third quarter. However, the gains were modest, with Muni California Long performing the best, notching up a 1.7% gain in the quarter. Three funds from this category, Fidelity Adv CA Muni Inc A (MUTF: FCMAX ), Fidelity Adv NY Muni Income A (MUTF: FNMAX ) and Fidelity Adv Muni Income A (MUTF: FAMUX ) featured in the best performers’ list. While FCMAX and FNMAX carry a Strong Buy rank, FAMUX has a Zacks Mutual Fund Rank #3 (Hold). Apart from the Government and Municipal categories, Real Estate was also in the top list of fund category performers. The sector returned nearly 1.4% in the third quarter. Four Fidelity funds feature in the list of the top 15 gainers. These are Fidelity Spartan Rl Est Index Inv (MUTF: FRXIX ), Fidelity Real Estate Investment (MUTF: FRESX ), Fidelity Series Real Estate Eqty (MUTF: FREDX ) and Fidelity Adv Real Estate Fund A (MUTF: FHEAX ). However, FRESX and FHEAX carry a Zacks Mutual Fund Rank #4 (Sell) and Zacks Mutual Fund Rank #5 (Strong Sell). FRXIX is the only fund here that carries a Zacks Mutual Fund Rank #1 while FREDX carries a Zacks Mutual Fund Rank #3 (Hold). Original post .

Should You Buy Value Stocks Today?

The third quarter was abysmal for stock markets. October has proven the pain short-lived. Growth stocks have outperformed value stocks. But value has the long-term track record of outsized returns. The typical investor is a notoriously bad timer at buying and selling. A good advisor helps limit emotion-driven mistakes. The third quarter is now on the books and it was an ugly one for stocks. The S&P 500 ( SPY , IVV ) fell 6.4% while the Russell 1000 Value ( IWD ), arguably one of the best indices to benchmark “value” stock performance, was down 8.4%. We commented last month, “We concede that there are plenty of reasons to hesitate, but we’re putting capital to work. The economic landscape in the U.S. remains favorable to equities and more importantly, ample long-term investment opportunities exist. … And that’s why we’re buyers.” At least for now, the recent turmoil has proved short-lived. The S&P 500 is up over 8.0% in October and the Russell 1000 Value has posted a similar gain. For the year, the S&P 500 has delivered a 2.5% gain, while the Russell 1000 Value returned negative 1.8%. Growth stocks are up over 6.0% in 2015. Value stocks’ year-to-date underperformance of growth stocks isn’t a new trend. It’s been a tough going for value for many years now. (click to enlarge) Since Black Cypress’s inception in the summer of 2009, over six years ago, growth stocks have outperformed value stocks by 23% — about 3.0% per year. Growth’s cumulative outperformance stretches back even further, all the way to the end of 2006 before the onset of the recent financial crisis. Growth has bested value by 5% per year for almost nine years. There are only two other instances in history where growth’s dominance reigned longer: the Great Depression (another financial crisis) and the technology bubble of the 1990s. Such multi-year value underperformance is unusual. Historically, it lasts a few years at most and growth’s cumulative gains are reversed over a one or two-year period. At least that’s the historical precedent. Since 1927, value stocks have returned an average 2.5% more per year than growth stocks. Academics call this historical outperformance of value over growth the “value premium”. And yet, while the value premium is a well-documented phenomenon, most investors fail to capture it. Owning an underperforming asset taxes one’s patience. Continuing to own it requires a deep conviction in one’s research as well as the emotional fortitude to withstand the frustration that comes with being at odds with the market. Most investors have neither. And therein lays the likely reason the value premium remains despite widespread knowledge of its existence: capturing it entails suffering through occasional periods of underperformance. Individual investors buy and sell at inopportune times, fund managers fear redemptions and hug their benchmarks, and advisors chase the hottest funds. And the value premium persists. One of the best studies to illustrate such bad investor behavior and its impact on performance is DALBAR’s Quantitative Analysis of Investor Behavior. This study doesn’t address the value premium in any way, but it is illustrative of investor actions and their effects, which makes it relevant to our discussion. The 2014 QAIB stated that over the last 30 years, investors in stock mutual funds averaged annual returns of 4.0%, while the S&P 500 averaged about 11.0%. That is, the very investors that were seeking equity market performance by buying stock mutual funds underperformed stock markets by over 7.0% per year. The culprit? Poor timing decisions. Investors — including individuals, advisors, and consultants — added to their stock positions at or near stock market peaks and sold near market lows. Investors also hesitated to invest again after markets bottomed. Investors are their own worst enemy. We choose to address these topics for two reasons. First, because we’re value-oriented investors and it has been one of the more inhospitable environments in history for our investment approach. In the last two years alone, growth stocks have outperformed value stocks by 9.0%. To say the least, it has been a challenge to provide outsized returns with our currently out-of-favor approach. And yet, despite the headwind of growth over value since our firm’s inception, our strategies have held their own with broad markets. Considering what we’ve been up against, including growth’s dominance as well as no opportunity to showcase our risk management practices in this ongoing bull market, we’re pleased with our results. And today, we think our portfolio is about as well-positioned against the market as it has ever been. Broadly, we like value’s prospects over the next five years. The second reason we delved into these topics is because one of the most important functions of an investment advisor is to provide a check on emotion-driven decisions. Coaching to buy, sell, and hold, and the timing of these recommendations, often goes overlooked in an advisory relationship. But it can be more important than security selection itself. Get an advisor you can trust if you’ve found yourself buying and selling for no other reason than emotion. You’ll save yourself some well-deserved self-ridicule and probably a lot of money too. Our portfolio is well-positioned to capture the value premium and to create excess value through our carefully selected individual company holdings in the years ahead. Is yours?

Who Are The Market Makers? What Do They Do? WHY?

Summary We constantly talk about the market makers [MMs] and their activities. It is apparent from their comments, that many readers have varied, limited views about the function of MMs, their status, regulation, objectives, and their compensations. A late-August irregularity in securities markets functioning created knowledgeable analysis and comment discussing all that, much of which may help our perspective and understanding. The August 24 th Market Opening Problem The casual, intermittent user of US equities markets may not even be aware that there was a problem or the seriousness of its condition. By 10:30 am NYC time that Monday, things were pretty much back to near normal, and trading the rest of the day was being conducted about as usual. But the previous hour or two nearly shut down the ability of investors and speculators to carry out their planned transactions. Many unpublicized DK (don’t know) trades complicated the end of day settlement processes. Here is how one deeply involved observer firm described what happened: Recent Volatility in the US Equity Market In late August 2015, the US equity market experienced a rapid spike in volatility as global market sentiment weighed bearishly on stocks. During that period, the VIX volatility index doubled and equity-trading volumes surged as investors reassessed global growth prospects and inflation expectations. Market activity on August 24 was particularly extreme. Before the market opened, global equity markets were down 3% to 5% and the e-mini S&P 500 future was limit down 5% in pre-market trading before wider price curbs went into effect at 9:30 am. Due to these pre-opening factors, the morning began under selling pressure with substantial order imbalances at the open as investors reacting to global macro concerns flooded the marketplace with aggressive orders to sell (that is, orders to sell without any restrictions as to price or time frame such as market and stop-loss sell orders). According to the New York Stock Exchange (NYSE), the volume of market orders on August 24 was four times the number of market orders observed on an average trading day. Extensive use of market and stop-loss orders overwhelmed the immediate supply of liquidity, leading to severe price gaps that triggered numerous LULD (limit-up, limit-down) trading halts. The confluence of these factors contributed to aberrant price swings and volatility across the US equity market. For example, the S&P 500 index was at a low, down 5.3%, within the first five minutes of trading, then rallied 4.7% off the lows before selling off again late in the session to close down 3.9%. Bellwether stocks such as JPMorgan (NYSE: JPM ), Ford (NYSE: F ), and General Electric (NYSE: GE ) saw temporary price declines in excess of 20%. Individual stocks as well as ETPs (exchange traded products) and CEFs (closed end funds) experienced significant dislocations after the opening followed by unusual volatility. Transparency and Information Flow Price transparency and information flow in the US equity market were curtailed from the start, forming one of the key contributors to the day’s events. Anticipating widespread volatility, NYSE invoked Rule 48 prior to the open. NYSE Rule 48 suspends the requirements to make indications regarding a stock’s opening price and to seek approval from exchange floor officials prior to opening a stock. By suspending time-consuming manual procedures, this action should have permitted Designated Market Makers (DMMs) to open stocks more quickly and effectively. However, this rule had the unintended effect of limiting pre-open pricing information in securities, especially for any stocks experiencing delayed opens. Although DMMs actively worked to facilitate a prompt open for all securities, the opening auction was considerably delayed for an extensive number of stocks. At 9:40 am, nearly half of NYSE-listed equities had yet to begin normal trading. These delays, along with the absence of pre-open indications, impeded the normal flow of information, which market makers and other participants rely upon to perform their customary activities with respect to the market open. Without this information, and with many securities experiencing delayed openings, correlations snapped between prices for securities in the same industry or ETPs tracking identical benchmarks deviating significantly from one another. In financials, for example, JPMorgan experienced a sharp decline, while Morgan Stanley (NYSE: MS ) did not. The basis between futures and cash prices for the S&P 500 index also widened considerably – futures traded at a 1.66% discount to the corresponding equity basket. These dislocations heightened uncertainty in the market because the validity of automated pricing models becomes challenged when there are meaningful disparities between the prices of normally correlated securities. Additionally, since many of the computerized processes, which support market making, rely on futures as a reference asset, the ability of market makers to efficiently allocate capital and price risk was inhibited. Market makers faced further uncertainty on the cancellation of potentially “erroneous trades,” adding to their reluctance to trade. The lack of price transparency impaired the ETP “arbitrage mechanism” because market makers were unable to rely upon price information for individual stocks to determine when arbitrage opportunities exist between the ETP and its underlying basket, and to hedge their positions. In the absence of the necessary data, many market makers ceased arbitraging US equity ETPs. Exchange-Traded Products The market forces discussed above led to a temporary breakdown in the arbitrage mechanism of many ETPs. 327 ETPs experienced LULD halts on August 24. Many ETPs also experienced brief periods where they traded at significant discounts to the value of their underlying portfolio holdings. As a result, the events of August 24 left many investors dissatisfied with the prices at which trades were executed and raised concerns about the functioning of markets and ETPs. Further, like individual stocks, the confluence of order imbalances, lack of information flow, and opening issues contributed to differing experiences, even for comparable ETPs. Retail investors who had standing stop-loss orders were especially impacted – once the stop price was reached, the orders were converted into market orders, which were often executed at prices that were markedly lower than the stop price. As stop-loss orders are typically intended to be used to mitigate losses, investor education about the risks of stop-loss orders should be significantly increased. To that end, Figure 1 may be helpful. Figure 1 (click to enlarge) Now You Probably Know More Than You Want And there is even more complexity involved. But the necessary message is that in a trillion dollar a day market complex, lots of actions need to be coordinated. Computer programs that expedite actions have rigidities that need to be softened in some circumstances by human judgment. Often that is where market makers [MMs] get involved. Several of the key MM functions and responsibilities are outlined in Figure 2 Figure 2 (click to enlarge) Source: BlackRock Capital Management Figure 3 identifies the principal roles of MMs as providers of liquidity, the usual MM function thought of when the subject of market makers comes up. Figure 3 (click to enlarge) Source: BlackRock Capital Management Key to understanding these roles are the impact they have on prices and price trends. The size of capital involved in typical transactions is a principal determinant. That makes the first listed category of Liquidity Provider, the block trade facilitating broker-dealer, the most significant stock price impactors of MMs by far. These are irregular but frequently occurring, multimillion-dollar trades. Each one typically has the price impact potential to step away from the posted last trade and the current bid~offer quote by a full percent or more. Skillful execution may prevent such a change, or encourage it. Trade and market savvy are important resources, along with arbitrage experience. Firms engaging in the block trade business are often vertically integrated or diversified in their MM activities into several other or all of the roles listed. Exchange-registered market makers tend to be the traffic cops of the current day exchange world and have procedural influence that affords stature in the internal community. Their exposure to the public is usually quite limited, but their day-in, day-out functions may be essential. The remains of the exchange floor specialist system are here. Wholesale MMs serving regional brokers are essentially an internal function of the MM community and are among the least influential as to procedure or securities prices. Technology dominates the electronic MMs, earning them frequency and pervasiveness of presence in number of trades. The billions of shares regularly traded could not be exchanged without this support. But the typical price changes involved from last trade tends to be tiny and highly mechanistic. Their principal contribution is immediacy of executions at low cost. The high-frequency arbitrageurs or HFT players are the intellectual and market savvy step-outs of the electronic MM organizations. Their influence is in the bid~offer realm more than in the trade volume arena. They are constantly sniffing quotes to find risk-free arb opportunities, and individual investors rarely are aware of their presence. But their reach is extensive and they are a liquidity-providing influence. Competition hones their honesty, as a group. Their accomplishments financially tend to be a basis point at a time, just a million times over. They are expert exploiters of the leverage of time. For those interested in the full complexities of the market making process here is the complete BlackRock discussion and their recommendations for market operating revisions. Some of the underlying problems go back to the 1987 “portfolio insurance” market failure debacle. Conclusion Market makers come in a variety of flavors and perform many functions essential to the power and value of today’s equity markets. Where their influence to the advantage of individual investors is the greatest is in their service to those investment organizations that must trade in market-disrupting units because of their size. That limitation of size is unavoidable since the economic basis for their investing businesses is in the amount of capital under their management. They are active investors in order to utilize their info-gathering intelligence resources. But the advantage for us is that they use the arbitrage skills of trusted market making firms to provide the other side of those big trades and the temporary financial liquidity to acquire or dispose of the thousands of shares regularly involved. In the process of MMs hedging the risk to their capital, what is revealed is the extent of the risk believed to be present. Those self-protective actions and the implicit price-range forecasts prove to be useful guides as to future specific price moves, on a very comparable base among equity investments of wide diversity.