The 3 Best Fidelity Funds to Buy

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Fidelity is a gargantuan in the fund management industry. The Boston-based investment company has $3.3 trillion in assets under management, much of it spread across exchange traded, index and mutual funds, meaning there are plenty of Fidelity funds to buy.

Moreover, there’s an ample amount of Fidelity funds to buy that are actually worth investors’ hard-earned capital. As many investors already know, Fidelity is a behemoth in the actively managed mutual fund and retirement planning circles, but in recent years, the issuer is flexing its muscles on the low-cost front.

Fidelity’s fast-growing ETF business has the cheapest sector funds and some other low-cost offerings. Showing it’s taking reducing costs seriously, Fidelity doesn’t charge trading fees on any of its funds and none of its index or active mutual funds carry required minimum investments. Plus, several Fidelity index funds have no expense ratios. Yes, that’s right. Zero percent per year.

With those perks and more to consider, here are some of the best Fidelity funds to buy now.

  • Fidelity Zero Extended Market Index Fund (MUTF:FZIPX)
  • Fidelity Stocks for Inflation ETF (NYSEARCA:FCPI)
  • Fidelity Dividend ETF for Rising Rates (NYSEARCA:FDRR)

Fidelity Zero Extended Market Index Fund (FZIPX)

Source: Shutterstock

Expense ratio: 0% per year

The Fidelity Zero Extended Market Index Fund has long been one of my personal favorites among Fidelity funds, owing in part to its status as a zero-fee, no minimum investment product. Often, investors can stomach a minimum investment with a good fund. But over time, the benefit of not having an annual fee taken out of one’s portfolio is considerable, confirming FZIPX’s status as a solid idea for long-term investors.

Clearly, market participants like this good deal because at just over two years old and with little fanfare, FZIPX is already home to $573 million in assets under management.

FZIPX is designed to offer investors broad-based exposure to smaller stocks, mainly mid- and small-cap care, that don’t meet the market capitalization requirements for widely followed large-cap indices, such as the S&P 500. That strategy makes FZIPX’s zero-fee gambit all the more impressive because mid- and small-cap funds typically carry higher fees than large-cap rivals.

Making this fund’s lack of expenses even more impressive is that its turnover ratio is 36%, meaning its roster is often home to stocks that graduate to large-cap status. That’s the case today as several of the top 10 holdings in FZIPX are novel coronavirus plays that are soaring this year, but even when those names move onto large-cap benchmarks, investors won’t be left with turnover costs.

Fidelity Stocks for Inflation ETF (FCPI)

Source: g0d4ather / Shutterstock.com

Expense ratio: 0.29% per year, or $29 on a $10,000 investment

ETFs that address a specific macroeconomic concept, such as inflation, usually need that scenario to be at play in the current environment to lure investors. That explains the slow start for the Fidelity Stocks for Inflation ETF, which at about a year old, has just $3.6 million in assets under management.

Part of the reason for that is it’s positioned as an inflation fighting fund and inflation numbers have been subdued for much of FCPI’s lifespan. However, that’s changing due to rampant government spending and historically low interest rates brought about by the Covid-19 pandemic. Indeed, there’s evidence indicating inflation is rising.

“Breakeven inflation rates, a market-based measure of expected inflation, have rallied since March,” according to BlackRock. “We see inflation-adjusted, or real yields, falling further, supporting prices of Treasury Inflation-Protected Securities (TIPS).”

FCPI addresses inflation at the equity level with a lineup that 94% large and mid caps and by allocating 44% of its weight to technology and health care names.

Fidelity Dividend ETF for Rising Rates (FDRR)

Source: Shutterstock

Expense ratio: 0.29% per year

Like the aforementioned FCPI, the Fidelity Dividend ETF for Rising Rates is positioned as a play on a specific macroeconomic scenario. In this case, and it’s just my two cents, I don’t like this marketing because it implies this Fidelity fund to buy will only be successful when interest rates are rising.

Obviously, the opposite is true today with borrowing costs at historic lows. That doesn’t mean FDRR should be scrapped from investors’ watch lists. Not with a 3.2% dividend yield.

Owing to the fund’s name, it would be reasonable to infer that FDRR is heavily allocated to financial services stocks because that sector is chock full of dividend payers and usually positively correlated to rising rates. Good news: That group represents just 10% of the FDRR roster. That’s important not just because interest rates are low, but also because the Federal Reserve is dictating dividend policy to the largest U.S. banks, in effect restraining payout growth.

Speaking of dividend growth, FDRR has that and Fidelity may want to consider a name change for this fund that more accurately reflects its benefits, not its dependence on monetary policy. The technology and healthcare sectors, two of this year’s best dividend growth groups, combine for 46% of FDRR’s weight.

On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Todd Shriber has been an InvestorPlace contributor since 2014.