This best performing mutual fund in my portfolio, gave me a gain in 2020, of over 60%! Learn what this fund is and the methodology I used which ultimately led me to choosing this particular fund over all of the others.
2020 has been a crazy year overall.
And the stock market last year was no exception — with its record setting highs, then record setting lows, followed by immense volatility and then again with record setting highs!
If you were lucky enough to buy in at just the right time, you would’ve seen an extraordinary gain in your investments, but if you weren’t so lucky, the volatility could have done some real damage to your financial accounts.
For me, I was fortunate enough to rebalance a big part of my portfolio in early April 2020. And while I didn’t quite catch the bottom of the market retraction period, but I got in close enough to ride the recovery wave forward.
If you’d like to know what strategy I used to identify my sell and buy points last year in 2020 — check out my previous article, on my trading strategy during a recession.
And the best performing mutual fund in my portfolio in 2020, provided me with a gain of over 60%, in this past year. If you’d like to know what that fund is and the methodology I used which ultimately led me to choosing that particular fund over all of the others — then keep reading, as I go over the best performing mutual fund in my portfolio, in 2020.
So without further ado, the best performing fund for me in 2020, was $FNCMX — the Fidelity Nasdaq Composite Index Fund.
To explain why I picked this investment option and why I’ll likely continue to hold it for much of this new year in 2021, let me start at the beginning, with the composition of my portfolio, as a whole.
My investment portfolio, in its entirety, is typically broken down into 4 different components:
- Stocks — 50%
- Mutual Funds — 35%
- Leveraged/Inverse ETFs — 10%
- Cash — 5%
Stocks typically take up most of my holdings, at around 50% — and gives me a good balance of growth trajectory vs risk.
For my longer term retirement accounts, I typically invest in a couple of safer mutual funds that are low cost and low volatility. They make up around 35% of the mix.
I also maintain a small position of speculative assets — including some leveraged or inverse ETFs, at around 10% of the portfolio.
And lastly, I try to keep a small percentage of cash on hand for any new and quick momentum opportunities that may come about in the near future.
And specifically within my mutual funds bucket, I typical cycle in and out of different total market and technology index funds — depending on the market sentiment throughout the year.
But for most of 2020, I’ve been holding onto FNCMX, the Fidelity Nasdaq Composite Index Fund — for the following 3 reasons.
1. Low Cost
First, FNCMX has one of the lowest expense ratios — compared to similarly performing funds in its category.
Follow along with me as I walk you through a brief analysis of this fund on Fidelity’s site.
Looking at the fidelity.com screener tool, let’s first get a list of all of the funds that have a high Morning Star rating, high returns and low expense ratios.
So in the list of results, you first see the top 3 recommended fidelity funds and then a list of all other mutual funds that match your criteria below.
For the sake of this exercise, let’s select those top 3 recommended fidelity funds here and then $SSMJX, and lastly add in our $FNCMX fund as our 5th comparison.
- $FSMAX: Fidelity Extended Market Index Fund
- $FBALX: Fidelity Balanced Fund
- $FDSCX: Fidelity Stock Selector Small Cap Fund
- $SSMJX: State Street Small/Mid Cap Equity Index Fund Class A
- $FNCMX: Fidelity Nasdaq Composite Index Fund
Now let’s take a look at the snapshot view on the first tab.
As you can see, all 5 funds have a 5 star rating from Morning Star, they all have low expense ratios, and they’re all relatively the same — in terms of risk category.
In the returns area, you’ll see that all of them except for $FNCMX are classified as high returns — we’ll talk a little more about why $FNCMX is listed as above average instead of high, in the next section.
But for now, come down to this chart here — looking at this 10 year view of the overall performance, you can clearly see that FNCMX, which is the dark green line, outpaces the other 4 index funds by quite a bit of margin.
(By the way, if you’re finding it hard to follow along in this article, watch the video version of this content here: Youtube Link.)
On the next tab, there is a table that gives you a historical view of the yearly performance of this fund.
Now, they have a year to date column that show the performance of the current year that we’re in — which given that it’s only January 8th, at the time of writing this article, means that we’re only looking at 4 days of actual trading, so far.
And it looks like $FNCMX’s performance is only a 1% gain vs the 4% gain that these other funds are showing — which is likely why we saw in the previous tab that this one was rated above average in returns, instead of high.
But the thing is, I usually don’t look at the year to date numbers this early on in the year — especially here, given that this represents only 4 days worth of data. It’s not really a useful representation of the fund’s performance.
But rather, I like to look at complete time periods — like the 1 year, 3 year and 10 year columns on the table. And if you look across the board, at a 1 year, 3 year, 5 year and 10 year perspective, $FNCMX outpaces the rest of the 4 funds, by a wide gap.
Also looking at the expense ratios, you can see that it’s the second lowest out of all of the funds here, as well. So not only is this fund the best performing of the bunch within the long term — when you look at it from a broad time frame, it’s also one of the cheapest.
2. Relatively Lower Risk To Higher Reward
The second reason, I really like $FNCMX, is that from a fund behavior standpoint, it measures positively on all of the risk factors.
On the risk tab here, the 4 indicators you’ll want to pay attention to — are Standard Deviation, the Sharpe Ratio, the Beta and the R Squared factor.
The standard deviation measures how much a fund’s return varies over an extended period of time. A higher standard deviation indicates a wider variation of past returns and thus greater historical volatility.
In the case of $FNCMC — the deviation is 21.08, which is less than most of the other funds, meaning it provides a more steady, consistent return year over year vs the other funds on this list.
Next, the 3 Yr Sharpe ratio is basically a measure of the amount of risk vs reward of the fund. The higher the ratio, the better the fund’s return rate is — relative to the level of risk it’s assuming. Rephrased even more simply, the higher the number, the less you risk for more of a gain. And as you can see from the chart — FNCMX also has the highest Sharpe ratio in the group.
Next, the Beta is a historical measure of a fund’s sensitivity to market movements, meaning, a beta of more than 1.0 indicates that this fund moves more violently compared to the market itself and a beta of less than 1.0 means that this fund has less of a reaction than the market as a whole.
So, as an example, if the overall market has an amazing up day and it spikes 10% within that trading period, a fund with a beta of 1.2 might go even higher than 10% during that same time — while a fund with a beta of 0.8, might not react as much to that same market movement. $FNCMX seems to be exactly in line with the reaction level as the overall market — at a beta of 1.0.
And lastly, R Squared is the same type of measurement as the beta, but it tracks sensitivity to the fund’s tracking index as opposed to the overall market. $FNCMX tracks against the Nasdaq Composite Index, and again a 1.0 here as well.
So what does all of this tell us in totality?
It says that $FNCMX has historically shown a higher rate of return while being stable enough to closely track the performance of the market and it’s underlying index. In other words, when the market has an up day, you typically see $FNCMX going up as well and in the past, its returns were noticeably higher than other similarly compared mutual funds — with similar compositions and objectives.
3. Solid Fund Management
Now, there are still many other tabs and other data points you can look at, but for me, the 3rd metric I usually consider when reviewing a mutual fund — is the fund’s management make up and tenure. To get a really detailed and comprehensive look at this data, I usually go to the funds details page for this. (You can click on any of the fund’s titles to get to Fidelity’s fund details page.)
On this page, there is a lot of information, but if you look towards the middle section, it’ll show the Fund Manager Section. It says here, that this mutual fund is managed by a global asset management firm called GEODE Capital — and if you do a little bit of research on them, you’ll see that they are an investment firm that dabbles in many different types of advanced asset strategies.
It looks like they’ve been managing this fund for over 17 years now and also manage a large number of other Fidelity index funds. For me — I typically like to see fund managers with long tenures within the same fund and consistent and steady results over the lifetime of management. Both of which Geode Capital seems to exhibit for $FNCMX.
Bonus: Fund’s Composition Looks Good
And as a bonus, the last thing you should look at, is what the composition of the fund looks like, particularly it’s top 10 holdings.
This module here, shows you that this fund is very heavy on tech and given that big tech has done well in the second half of 2020, it’s no wonder that $FNCMX has outperformed those other 4 funds we’ve looked at.
Now, as I’ve mentioned before — there is a lot of other information you can dive into about this mutual fund. I usually like to spend a few hours on this details page obsessing over all of the individual data points this page offers, but in the interest of time — I’ll close off on this article here.
But if you guys are thinking about investing in a new mutual fund or would like to check out this Fidelity Nasdaq Composite Index Fund in more detail, I’d highly encourage you guys to spend some time on the Fidelity fund details page — there is lot of information you can get here about any mutual fund or ETF.
Remember, before diving in on a particular stock or fund, you’ll want to do your own research and make sure you’ve done enough analysis to feel comfortable in your investment choices.
Have this knowledge will give you piece of mind, especially when the market goes through a rough patch — or a large recession, as was the case, last year, in 2020.
**** Disclaimer *****
The content here is strictly the opinion of Daniel’s Brew and is for entertainment purposes only. It should not be considered professional financial, investment or career advice. Investing and career decisions are personal choices that each individual must make for themselves in accordance with their situation and long term plans. Daniel’s Brew will not be held liable for any outcome as a result of anyone following the opinions provided in this content.