The year’s best and worst sector funds «
While 2011 started on a relatively upbeat prospect of continued recovery and economic growth in the U.S., the sovereign debt crisis in Europe, political turmoil in North Africa & the Middle East, and Standard and Poor’s downgrade of U.S. debt drained optimism through the year.
As stock prices danced to the tune of macroeconomic forces in the second half, volatility increased. So did correlation between stocks.
Responding to macroeconomic headwinds and low interest rates, investors have loaded up on economically less sensitive sectors and higher yielding industries. Defensive sectors and industries rose to the top of the year-to-date-performance tables.
Looking at Fidelity’s sector fund lineup, Fidelity Select Biotechnology /quotes/zigman/226555/realtime FBIOX +0.77% leads the pack with a year-to-date return of 12% as of Friday.
Fidelity Select Pharmaceuticals /quotes/zigman/291966/realtime FPHAX -0.15% and Fidelity Select Utilities /quotes/zigman/226545/realtime FSUTX -0.09% follow with gains of 11% and 9%, respectively.
Fidelity Select Financial Services /quotes/zigman/226546/realtime FIDSX -0.78% , Fidelity Select Brokerage and Investment Management /quotes/zigman/226547/realtime FSLBX -0.16% , and Fidelity Select Automotive /quotes/zigman/226506/realtime FSAVX -0.57% currently occupy the three bottom slots with Select Automotive having lost nearly 30%.
Select Automotive’s standing as the worst Fidelity sector fund for 2011 looks almost certain given this fund’s performance gap versus other laggards.
The spread between best and worst performing Fidelity sector funds is a relatively narrow 40% compared to the 12-year average of 71%.
The spread was a huge 120% in 2009 when Fidelity Select Automotive gained 122% and Fidelity Select Consumer Finance /quotes/zigman/128775/realtime FSVLX -0.91% gained 2%. It was narrowest in 2006 at 35% when Fidelity Real Estate /quotes/zigman/226524/realtime FRESX -0.58% gained 33% and Fidelity Select Medical Delivery /quotes/zigman/226540/realtime FSHCX +0.01% lost 2%.
Leading Sectors for 2012
So, what sectors are likely to take top honors in 2012?
The answer to this question is arguably more challenging this year than usual.
Why? Because what is working now may not work through 2012.
At present, Eurogeddon is at the top of investors’ concerns. In this fear-filled volatile market, sector selection techniques that rely solely on price trend will likely favor defensive groups such as consumer staples, health care, and utilities.
But, other factors can come into play to steer investors’ focus away from Europe towards the positives.
To ensure the best sector mutual funds are selected at all times , investors need to go beyond price trend and take a multi-dimensional approach to sector evaluation and selection.
Such an approach can help investors better anticipate and more quickly adapt to other scenarios.
With 2012 being a Presidential election year, the introduction of additional measures to stabilize the housing market and spur job creation is one such scenario.
Another scenario is subpar global growth making inflation less bothersome. This in turn prompts China and other emerging nations to ease their monetary policies to stimulate growth.
While a defensive sector like utilities can be among the better performers in the early part of 2012, it would not be surprising if others like consumer discretionary and industrials take charge down the road.