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Why only Fidelity Investments?

Fidelity Investments is the largest mutual fund family, both in number of mutual funds and in total assets. They have an excellent staff of fund managers, stock analysts, specialists, and researchers, and a powerful, state-of-the-art website, which makes it very easy to manage your investments. All Fidelity Investments mutual funds are no-load, which means that all of the money you invest goes to work for you—none of it goes to pay upfront loads, commissions, or fees. Fidelity Investments’ Select funds also have low expense ratios.


Why only Select mutual funds?

Fidelity Select Fundranker research with data from 1997 to 2003 showed that using only the Select mutual funds resulted in a better overall return than using all of Fidelity Investments’ mutual funds.

There was an additional factor that tipped Fidelity Select Fundranker toward Select funds only, but that factor was undone by Fidelity as of October 1, 2006. When Fidelity Select Fundranker was developed and through September, 2006, Fidelity Investments allowed their Select mutual funds to be traded as often as an investor wished with no penalties other than short-term trading fees. This policy allowed Fidelity Select Fundranker to preselect exchange dates that avoided those short-term trading fees. As of October 1, 2006, however, Fidelity Investments placed more stringent trading rules on their Select funds, which now have the same rules as their other funds. Now none of Fidelity Investments’ funds are intended to be traded frequently. Fidelity Investments’ new frequent trading policy for Select funds affects how Fidelity Select Fundranker chooses its exchange dates.


How do I subscribe?

Click on the Subscribe button on the Home page to use PayPal to pay $49/first year, then $99/year for your subscription. If you prefer, you can send a check for $49 for a one-year subscription to Fidelity Select Fundranker, 39 Southchase Dr, Fletcher, NC 28732-9265. Include your email address. As soon as PayPal notifies us of your subscription, or we receive your check in the mail, we will email a welcome message to you with a complimentary copy of the current issue for your perusal. If you don’t receive this welcome email within a day or two of your PayPal transaction or within a week or so of mailing your check, please check your spam folder or contact us.


What do I get by subscribing?

You will receive new issues of the Fidelity Select Fundranker newsletter via email on the first day of each month. You also will receive an email three business days in advance of each issue to alert you to the upcoming issue and the new month’s possible exchange dates, as determined under Fidelity Investments’ frequent trading policy for Select funds. Subscribing to the newsletter is the only way to get timely notice of the the new Top Eight Model Portfolio and the necessary exchanges each month. The newsletter issue, Top Eight Model Portfolio, and necessary exchanges are posted on the website only after a one-month delay, when it is too late to make timely use of them.


How do I get started? (updated 4/13/10)

To begin using the Fidelity Select Fundranker system, open a Fidelity mutual fund account online at www.fidelity.com and invest all of your funds in Fidelity Select Money Market. When that process is complete, and to minimize your exposure to roundtrip transactions, which are discouraged by Fidelity Investments’ frequent trading policy for Select funds, don’t wait for the next Fundranker exchange date to invest. Instead, buy equal amounts of the funds in the new Top Eight Model Portfolio on the Invest New Money Date given in the next issue of Fidelity Select Fundranker. Since all eight of your funds will have been held only one month when you make exchanges the following month, be careful to wait 30 days to avoid roundtrip transactions.

If you enter exchanges using Fidelity Investments’ automated telephone service or online at www.fidelity.com, you will avoid the $7.50 exchange fee which Fidelity charges for exchanges handled by a representative.

Fidelity Investments requires $2,500 to open individual, joint, traditional IRA, or Roth IRA accounts (see the Fundranker blog post about Fidelity minimum initial investments for an exception for traditional and Roth IRA accounts) in Select mutual funds, so with these types of accounts, the absolute minimum you would need to invest in all eight funds in the Top Eight Model Portfolio is $20,000. This minimum, however, would leave you open to a fund falling below $2,500 during the course of time it is held, which would make it problematic to exchange it to another fund. To avoid this situation, you should have $24,000 ($3,000 for each fund) or more to invest using the Fidelity Select Fundranker system in these types of accounts.

For SEP-IRA or Keogh retirement accounts (see the Fundranker blog post about Fidelity minimum initial investments for an exception for traditional and Roth IRA accounts), however, Fidelity Investments requires only $500 to open an account in a Select fund, so you should have $4,800 ($600 for each fund) or more to invest using the Fidelity Select Fundranker system in these types of accounts.

If you want to start gradually with the Fidelity Select Fundranker system, especially if you are limited by IRA yearly contribution limits, here is an alternate way to get started:

1. Buy as many of the Top Eight Model Portfolio funds at $3,000 each ($600 each for SEP-IRA and Keogh accounts, but see ditto above) as you can with your initial investment or IRA contribution on the Invest New Money Date given in the next issue of Fidelity Select Fundranker. Put any extra in one of the funds, or leave it in Select Money Market to use later when you invest more, whatever makes you comfortable.

2. With each additional investment or IRA contribution, buy more funds in the Top Eight Model Portfolio on the Invest New Money Date given in the next issue of Fidelity Select Fundranker. Again, put any extra in one of the funds, or leave it in Select Money Market.

3. Each time you accumulate $3,000 ($600 for SEP-IRA or Keogh, but see ditto above) in Select Money Market or one of your funds reaches the $6,000 ($1,200 for SEP-IRA or Keogh, but see ditto above) threshold, on the Invest New Money Date given in the next issue of Fidelity Select Fundranker, exchange $3,000 ($600 for SEP-IRA or Keogh, but see ditto above) into another fund of the Top Eight Model Portfolio that you don't already own.

4. As you would if you owned all eight funds in the Top Eight Model Portfolio, if any of your funds fall out of the Top Eight Model Portfolio, exchange them on a Fundranker exchange date to remain aligned with the Top Eight Model Portfolio.

5. Since you will be less diversified, choose your subset of the Top Eight Model Portfolio funds carefully with your own criteria, so that you are comfortable with them. For example, you could review historical performance of Top Eight Model Portfolio funds on Fidelity Investments’ website, www.fidelity.com, to help you decide which of them fit you best as far as how stable or volatile they are, or, when you add another Top Eight Model Portfolio fund to your portfolio, you might choose a fund in a different sector than funds you already own.


When should I enter my exchanges for them to be processed on the exchange date?

Exchanges entered after 4pm ET on a day the stock market is open are not processed until the next day the stock market is open. In other words, you can enter your exchanges anytime after 4pm ET on the preceding business day and before 4pm ET on the Fundranker exchange date itself. If an exchange date falls on a Monday, you can enter your exchanges anytime after 4pm ET the preceding Friday and before 4pm ET Monday. If it falls on a Tuesday through Friday, you can enter your exchanges anytime after 4pm ET on the preceding day and before 4pm ET on the exchange date.

On occassion, such as the day before July 4, the day after Thanksgiving, and the day before Christmas, the NYSE closes early at 1pm ET. On those days, you would have to enter your exchanges before 1pm for them to be processed that day, or after 1pm for them to be processed the next business day.


What if I miss a Fundranker exchange date?

If you miss a Fundranker exchange date by a day or two for a particular exchange, don’t panic. If you exchange funds after the Fundranker exchange date, it will only be important if the fund you buy has to be exchanged again the very next month. If that does occur, then make sure you wait 30 days before you exchange it to avoid a roundtrip transaction, which is discouraged by Fidelity Investments’ frequent trading policy for Select funds. If Fundranker calls for several exchanges, only delay those that are absolutely necessary to avoid roundtrip transactions. Making your other exchanges on time will make it easier to avoid roundtrip transactions on the new funds, should it be necessary to exchange the next month.


How do I rebalance my funds? (updated 3/30/10)

Fundranker research indicates that keeping the values of your eight funds balanced offers the best long-term performance for your portfolio. Rebalancing has to be done with an eye to avoiding roundtrip transactions, which are discouraged by Fidelity Investments’ frequent trading policy for Select funds, however, so it is best to rebalance at the beginning of a month when the earliest exchange date for the next month, that is, the first business day after the first day of the next month, is at least 30 days later. There are three methods of rebalancing your accounts, which are discussed below. Appropriate dates for each method are shown in each new issue of Fidelity Select Fundranker. Sometimes they coincide with Fundranker exchange dates and sometimes they are earlier in the month. You may be unable to rebalance your funds completely in any particular month, but you can rebalance periodically to keep your funds fairly close to being balanced.

If your funds are in nontaxable or tax deferred accounts, such as IRAs, rebalance on as many of the optional rebalancing exchange dates as you wish. If you have taxable accounts, however, rebalancing exchanges may involve taxable gains, so you should weigh your tax consequences against having better balanced positions. You may wish to rebalance funds with taxable gains only when they fall out of the Top Eight Model Portfolio and their gains will be realized anyway.

Method 1: Occassionally you will have an opportunity to truly balance your funds in a two-day process. It involves selling all eight of your funds the first day, and buying all eight funds in the Top Eight Model Portfolio the next day. Note: if you do this in a taxable account, and you realize a capital loss on a fund you repurchase the next day, you will have what the IRS calls a wash sale, and some or all of your loss will be deferred until you sell that fund in the future. This method is by far the easiest and provides the best rebalancing results, but the opportunity occurs relatively infrequently. These opportunities occur when a Fundranker exchange date falls such that it is at least 30 days after the previous exchange date and at least 31 days before the earliest possible exchange date for the next month, that is, the first business day after the first day of the next month. For example, this occurred in 2008 when Fundranker exchanged on September 2, October 2, and November 3. These special two-step rebalancing dates will be pointed out in future issues of the Fidelity Select Fundranker newsletter when they occur. Before 4pm ET on the Method 1 rebalancing exchange date (October 2, 2008, in the above example) listed in your new issue of Fidelity Select Fundranker, exchange all eight of your funds to Select Money Market. No roundtrip transactions will result because the previous exchange date (September 2 in the above example) fell at least 30 days before. Before 4pm ET on the following business day (October 3 in the above example), exchange equal amounts to the eight funds in the Top Eight Model Portfolio for that month. Select Money Market is not subject to roundtrip transaction restrictions, and the exchange date for the next month (November 3 in the above example) will avoid roundtrip transactions on your eight new funds. See the Fundranker blog post about Method 1 Rebalancing for more information.

Method 2: If you want to balance more often than the two-day method allows, here is an easy method to rebalance at least some of your eight funds almost every month (any month in which the earliest possible Fundranker exchange date falls at least 30 days before the earliest possible Fundranker exchange date for the following month):

1. Divide the total value of your eight funds by eight to find your goal amount for each fund.

2. Check the value of each fund which you purchased at least 30 days before the rebalancing exchange date, including any that just fell out of the Top Eight Model Portfolio and are being exchanged, to see if any exceed your goal amount. These are the only funds from which you should make balancing exchanges.

3. Check the value of your funds which did not fall out of the Top Eight Model Portfolio (you won’t be exchanging them) to see if any are less than your goal amount. These are the only funds to which you should make balancing exchanges.

4. Before 4pm ET on the Method 2 rebalancing exchange date shown in your new issue of Fidelity Select Fundranker, exchange from the funds you determined in step 2 directly to the funds you determined in step 3 to balance them as much as possible. The smallest exchange amount Fidelity allows is $250.

See the Fundranker blog post about Method 2 Rebalancing for more information.

Method 3: You also may have an opportunity to rebalance one or more new funds on the regular Fundranker exchange date. Before you do the regular Fundranker exchanges, consider the following rebalancing exchanges:

1. Divide the total value of your eight funds by eight to find your goal amount for each fund.

2. Check the value of each fund which you purchased at least 30 days before the rebalancing exchange date, including any that just fell out of the Top Eight Model Portfolio and are being exchanged, to see if any exceed your goal amount by at least $2,500 ($500 for SEP-IRA or Keogh accounts, but see the Fundranker blog post about Fidelity minimum initial investments). These are the only funds from which you should make balancing exchanges.

3. Check the value of your funds which fell out of the Top Eight Model Portfolio to see if any are under your goal amount by at least $2,500 ($500 for SEP-IRA or Keogh accounts, but see ditto above). The new Top Eight Model Portfolio funds that replace them are the only funds to which you should make balancing exchanges.

4. Before 4pm ET on the regular Fundranker exchange date, exchange from the funds you determined in step 2 directly to the funds you determined in step 3 to balance them as much as possible. You essentially are opening a new position in the new funds, hence the minimums mentioned in steps 2 and 3.

5. Also before 4pm ET on the regular Fundranker exchange date, make your regular exchanges.

See the Fundranker blog post about Method 3 Rebalancing for more information.

When you make multiple exchanges into a new fund in the same account on the same day, Fidelity combines them into a single position after the exchanges are completed.

When you make a regular Fundranker exchange out of a fund from which you have already made a rebalancing exchange, Fidelity will warn you that you already have an exchange from that fund, which is okay. For this second exchange, you should choose the all shares option. In this case, it means all remaining shares after the first exchange is processed. This is why you need to enter your balancing exchanges before you enter your regular exchanges.


Is Fidelity Select Fundranker tracked by Hulbert Financial Digest?

Mark Hulbert began tracking investment newsletter performance in 1980. Today, Hulbert Financial Digest and Hulbert Interactive track over 180 stock and mutual fund investment newsletters. Although Fidelity Select Fundranker is not yet tracked by Hulbert Financial Digest and Hulbert Interactive, it stacks up very well against newsletters that are tracked. See Fidelity Select Fundranker’s current Hulbert Financial Digest would be rankings.


How do I change the way PayPal charges me for my subscription renewal?

If you subscribed to Fidelity Select Fundranker by clicking the Subscribe button on the Home page and using PayPal, your subscription is renewed automatically by PayPal on each anniversary of your initial subscription date. To change how PayPal charges you for your subscription, sign onto your PayPal account, click the History tab, select Subscriptions in the Show drop down box, select appropriate dates, click Search, click Details for Fidelity Select Fundranker, make your changes, and click Update Information. Alternatively, go to our Change Subscription page and click the Change button, which will take you to the correct PayPal page.


How do I cancel my subscription?

If you subscribed to Fidelity Select Fundranker by clicking the Subscribe button on the Home page and paying with PayPal, PayPal renews your subscription automatically on each anniversary of your initial subscription date unless you cancel it. To cancel your subscription, sign onto your PayPal account, click the History tab, select Subscriptions in the Show drop down box, select appropriate dates, click Search, click Details for Fidelity Select Fundranker, and click Cancel Subscription. Alternatively, go to our Cancel Subscription page and click the Cancel button, which will take you to the correct PayPal page.

If you subscribed to Fidelity Select Fundranker by mailing a check to Fidelity Select Fundranker, please contact us using our Cancel Subscription Form.


How does Fidelity Select Fundranker set its exchange dates?

Fidelity Select Fundranker’s exchange dates are carefully selected to allow time to distribute the newsletter and to avoid roundtrip transactions, which are discouraged by Fidelity Investments’ frequent trading policy for Select funds. A Fundranker exchange date is never earlier than the second day of the month and is always at least 30 days after the previous exchange date if a fund held for only a month is being exchanged.


What is Fidelity Investments’ frequent trading policy for Select funds, and how does it affect Fidelity Select Fundranker?

As of October 1, 2006, Fidelity Investments instituted a new policy for frequent trading of their Select mutual funds. Fidelity now measures excessive trading activity for Select funds by the number of roundtrip transactions (buying and selling within 30 days) that occur in a shareholder’s account. Shareholders are limited to two roundtrip transactions per fund within any rolling 90-day period and four roundtrip transactions across all Fidelity funds within any rolling 12-month period.

So that you don’t have to keep track of how many roundtrip transactions occur in your Fidelity account, Fidelity Select Fundranker will avoid roundtrip transactions altogether. To accomplish this, Fidelity Select Fundranker will set an exchange date only after determining whether any funds held only one month are to be exchanged. If all funds to be sold in the Top Eight Model Portfolio have been held longer than one month, the exchange date will be on the first business day after the first day of the month. If any of the funds that are to be sold have been held only one month, the exchange date will be the first business day at least 30 days after the previous exchange date. The alert email sent to subscribers in advance of an issue of Fidelity Select Fundranker will give the possible exchange dates. Each issue of Fidelity Select Fundranker will give the exact exchange date for the new month as well as the possible exchange dates for the following month.

To help you avoid inadvertent roundtrip transactions, if you enter an exchange on Fidelity’s online system that will cause one, the system will alert you before you place the order.


How was the Fidelity Select Fundranker system developed?

In early 2003, as we developed our mutual fund trading system here at Fidelity Select Fundranker, we adopted four basic principles: 1) concentrate on Fidelity Investments Select mutual funds, 2) stay 100% invested, 3) monitor the performance of potential funds and move regularly to better performing funds, and 4) stay diversified.

The overwhelming number of mutual funds that exist in the United States made it clear we had to limit the scope of our trading system somehow and led us to our first principle. We chose Fidelity Investments funds because of the breadth of their fund choices, the performance of their funds, their commitment to research, and their groundbreaking Internet technology for managing accounts. Extensive testing showed that the Fundranker system provided a higher overall return using only their Select funds.

Our second principle is to stay 100% invested. Many studies have shown that the certainty of being in the market during upturns more than makes up for being in the market during downturns. The Fundranker system stays invested in Select equity funds and never holds cash.

For our third principle, we wanted to monitor the performance of Fidelity’s Select funds in a way that showed us how well each fund was performing in current market conditions so that we could move regularly to better performing funds. We developed a rating system that includes long-term performance, emphasizes short-term performance, and rewards top-performing funds. With these criteria, deserving funds rise quickly into the Top Eight Model Portfolio, stay in while they are still performing well, and fall out quickly when their performance declines.

For our fourth principle, we wanted our model portfolio to be well diversified. Fidelity’s 41 Select funds (39 as of June 19, 2009) cover every imaginable sector of the market and provide substantial diversification in the pool of potential funds for the Fundranker system. In early 2003, using seven years of historical data, we tested how many funds to hold in our model portfolio. Though many combinations showed superior performance compared to market indexes, holding equal amounts in eight funds gave the best overall performance as well as providing diversity.


How much of Fidelity Select Fundranker’s performance presented in the newsletter and on the website is due to back testing vs. forward performance?

We developed the Fidelity Select Fundranker system in early 2003 using back testing on historical data from December 31, 1995 through early 2003. Performance of the Top Eight Model Portfolio for the first six plus years (1997 through May 30, 2003) therefore is hypothetical and attributable to the back testing period, but the Top Eight Model Portfolio’s forward performance from June, 2003, when the editor first began using it for his own investments, still has beaten the S&P 500 Index (as measured by Fidelity Spartan 500 Index Fund) hands down. Review Fidelity Select Fundranker charts and results, compare the period from January, 1997, through May, 2003, with the period from June, 2003, forward, and see for yourself that it has performed phenomenally in both periods.


How do Fidelity Select fund expense ratios compare to mutual fund industry averages?

The expense ratio of a mutual fund represents the annual percentage of a fund’s assets paid out in expenses. Expenses include management, 12b-1, transfer agent and all other fees associated with the fund’s daily operations and distribution. The expense ratio for each Fidelity Select fund is below (many considerably below) the comparable mutual fund industry average as calculated by Lipper Analytics, Inc. As of 8/31/05, all Fidelity Select fund expense ratios are at or below 1.25%, and many are less than 1%. In other words, Fidelity manages to provide top-notch services at well below average expense levels.

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