I made a switch in my Roth IRA portfolio last week. For the past year or so
I've played a two-fold strategy in this bear market. Half of the money was
in Fidelity Select Electronics (FSELX), hoping for a technology recovery. I contribute
to that fund every month because its extreme volatility gives me the most bang
for my dollar-cost averaging buck.
The other half was in Fidelity Select Home Finance (FSVLX), riding the surge of mortgage
refinancing and new home buying that accompanies a falling interest rate
environment.
Interest rates are about as
low as they're going to go. Now we're waiting
for the inevitable increase. That should mean
a slowdown in home financing somewhere down
the line.
I asked myself, "What will ramp up just about
the time home financing ramps down?" Looking over the
weekly collection of news stories (I only
read news summaries on a weekly basis in
an excellent magazine called The Week), I
see something persistently on the horizon:
war.
There's the War on Terror, of course. Now
the War on
Drugs is heating up again with Bush talking
about sending munitions to Columbia. The U.S.
has planned another war with
Iraq. Warren Buffett said at this year's
Berkshire Hathaway annual meeting that a
nuclear attack on U.S. soil is "virtually a
certainty."
The next question is, How big an impact will these
various wars have on the consumption of defense
products? A pretty big one, it seems to me. According
to The New York Times, the Defense Department
has begun planning a heavy air attack against Iraq's
350,000 troops. The air attack will be accompanied
by a ground assault by 75,000 to 250,000 U.S. troops.
While some think that the attack won't happen until
next year, The Boston Globe quoted Defense
Department sources who said the campaign will begin
as soon as this summer if Defense Secretary Donald
Rumsfeld has his "druthers."
What does well in a war? Defense stocks. So I switched from Fidelity Select
Home Finance to Fidelity Select Defense (FSDAX).
Here's how the three funds compare:
Average Annual Returns as of April 30, 2002
| FUND |
YTD |
1 year |
3 years |
5 years |
10 years |
| FSELX |
-9.3% |
-20.65% |
6.83% |
16.42% |
25.93% |
| FSVLX |
14.39% |
16.36% |
11.55% |
11.44% |
20.92% |
| FSDAX |
15.29% |
15.73% |
11.82% |
14.55% |
17.36% |
To see a chart comparing their most recent
year, click here.
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