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Veteran mutual fund investors have learned there's more tofund selection than just picking the hottest fund and plowing moneyinto it. Experience has taught them that today's hot fund couldbe tomorrow's loser. What matters most is consistent returnsover time.
But in what kinds of companies must a fund invest its assets ifit's looking for consistent returns over the long haul? Theanswer may surprise you.
The Fidelity Select Food and Agriculture Portfolio isn't thehottest-performing fund in the market today, but its track recordmakes it worth investigating. For the year ending October 31, 1998,the fund was up 17.91 percent.
Look back further, and the numbers are even stronger: For thepast three years, the fund's total average annual return was18.34 percent; over the past 10 years, 18.89 percent; andsince the fund's inception in 1985, it has returned on average19.42 percent per share each year to its shareholders,according to Fidelity Investments.
Although a fund's past track record doesn't guaranteeits future performance, this fund invests its assets in a marketsector that's been around forever and is so common it'seasy to overlook: staples. "Staples" is the name given toWall Street companies that make and/or sell things everyone usesregularly--food, beverages and soap, for example. "They'rethe products we really can't do without," says ScottOffen, the fund's portfolio manager.
And he's right. Look in your refrigerator or kitchencabinets, and you'll probably find some of the brand names thatare in the fund's portfolio: Coke, Pepsi, Campbell Soup andSara Lee.
But the real beauty of staple companies goes beyond brand namerecognition. Staples are considered "defensive"companies. That means these companies make the stuff that peoplewill use no matter what's happening to the Dow Jones IndustrialAverage, the S&P 500 or NASDAQ. For instance, if the market--orthe economy--is tanking, people might not go out and buy a new car,but they'll probably still buy a soda. So while lousy market oreconomic conditions could bring the share prices on staplecompanies down, the low per-unit cost of the products thesecompanies sell generally gives them more staying power.
Offen likes to keep between 40 and 50 stocks in the Select Foodand Agriculture Portfolio. The industries the fund favored at presstime were food, with 13.1 percent of the fund's assets investedthere, grocery/retail with 12.5 percent, beverages with 9 percentand tobacco with 8.2 percent.
This fund is not for those who want to invest in fast-growingcompanies, like many of the tech stocks, or for those who refuse toinvest in tobacco companies. It's best suited for those whounderstand the valuable role defensive companies can play in aportfolio.
It's also for those who prefer chicken to steak."Consumers like consistency," says Offen."They'd rather buy chicken because they know it's lowin fat and they know what it's going to taste like; theyrealize they aren't going to get the high and low experiencethey can with beef."
Dian Vujovich is a nationally syndicated mutual fundcolumnist and author of Straight Talk About Mutual Funds(McGraw-Hill), Straight Talk About Investing for YourRetirement (McGraw-Hill), and 10-Minute Guide to Stocks(Macmillan).
At A Glance
Fund name: Fidelity Select Food and Agriculture Portfolio(FDFAX)
Managed by: Fidelity Investments
Portfolio manager: Scott Offen
Top holdings: Anheuser-Busch, McDonald's, PhilipMorris, Safeway and Sara Lee
Total assets: $233.6 million
Average annual return: 19.42% (since its inception inJuly 1985)
Maximum load: 3%
Total expense ratio: 1.49%
Management fee: 0.6%
Minimum initial investment: $2,500 ($500 for retirementaccounts)
Phone: (800) 544-8888
Web site:http://www.fidelity.com
Figures are as of December 31, 1998.
