The Daily Interview: Fidelity Watcher Don Dion

As publisher of the monthly Fidelity Independent Adviser newsletter, Don Dion provides investors with a statistical ranking system for all of Fidelity's retail funds, gives insight into which funds he believes will outperform their peers and provides market commentary and model portfolios using Fidelity funds.

Donald R. Dion, Jr. Fidelity Independent Adviser Newsletter

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Dion, who is also president of Dion Money Management in Williamstown, Mass., also regularly researches and selects funds for his clients from other major fund firms like Janus, Vanguard and Invesco. (He receives no commissions or compensation from mutual fund companies in exchange for recommendations and his firm is independent and not affiliated with Fidelity.)

Dion is an institutional client of Fidelity's because of its history as a top-performing mutual fund company and its commitment to shareholders, he says. In today's Daily Interview, he offers some of his insights into the current market environment, the funds he's recommending and those he's telling investors to leave by the wayside.

TSC: What advice are you giving investors right now to deal with the current market environment?

Dion: Maintain a well-diversified portfolio of mutual funds, stay the course and don't go to cash, which many people have been inclined to do, from the conversations we've had with them. But if someone is not diversified, and they're overweighted in the technology area, we still believe that they should sell some of their technology holdings, even though those mutual funds have gone down, and use the proceeds to build a diversified portfolio.

TSC: Even if those funds might be at the bottom?

Dion: Well, that's really the question. We don't believe they're necessarily at the bottom. So we feel that it's appropriate for investors to sell enough of their technology funds so that they can reinvest the money and position the money in a diversified portfolio.

TSC: Which tech funds would you sell if you were in that position?

Dion: We would sell the funds that have holdings in speculative technology areas, such as those that specialize in the Internet area and in the rapidly growing mid- to small-size technology companies.

TSC: In your newsletter, you specialize in advising investors by using Fidelity funds. Are there any funds in particular that you're recommending right now?

Dion: Yes, we think there are five funds at Fidelity that can provide someone a good, diversified portfolio. And those would be (FCVSX Quote)Fidelity Convertible Securities, (FLPSX Quote)Fidelity Low-Priced Stock, (FDGFX Quote)Fidelity Dividend Growth (FFIDX Quote)Fidelity and (FMCSX Quote)Fidelity Mid-Cap Stock fund. That would provide a good portfolio for growth-oriented investors.

If someone is more growth-and-income oriented, then we would add the (PRTNX Quote)Pimco Real Return Bond A fund and the (FBNDX Quote)Fidelity Investment Grade Bond fund into that mix.

We have also had a lot of success over the past year in a few of the select areas in real estate and in energy. And the two funds that we would use in those two areas would be the (FSTEX Quote)Invesco Energy fund and the (TAREX Quote)Third Avenue Real Estate Value fund.

We have also been leaning more toward the value area. And one fund family that we've had strong success with is Fenimore Asset Management [FAM], specifically the (FAMVX Quote)FAM Value fund and the (FAMEX Quote)FAM Equity-Income fund.

TSC: What is it about the FAM funds that you like?

Dion: They tend to invest in companies that are paying a dividend. For example, with the FAM Equity Income fund, all of the companies that that fund owns pay a dividend. And they tend to own companies that have a low P/E and definite earnings visibility.

TSC: Are dividend- and interest-paying funds a new theme that you've been emphasizing lately?

Dion: We noticed about a year ago that many of the Fidelity funds were shifting toward the value area, and that's when we started moving our clients' money more into the value area. In hindsight, I wish we had have done more of that, but we did do quite a bit of it over the past 12 months, and that's really paid off.

TSC: So you don't feel like getting into value now is getting in too late to the game?

Dion: No. I think the value funds will continue to outperform the growth area, but I also believe that it's important to be well-diversified and to have some of your money in the growth area. That's why we recommend people own the Fidelity fund and the Fidelity dividend growth fund, which are funds that have a good weighting in the growth area.

TSC: Any funds that you're telling people to steer clear of right now?

Dion: We've been telling people for about three months to steer clear of the Janus funds. It's one of those unusual times when we agree with Jim Cramer.

We think they have a high concentration in a few technology stocks and many of their funds own many of the same companies in the technology area. So we have been steering clear of the Janus funds until we see some stability in the tech wreck that we've experienced over the past 12 months.

TSC: What are some of the biggest mistakes that you're seeing mutual fund investors making right now?

Dion: Turning away from their long-established goals of investing for the long term. We have seen some investors that have a long-term horizon, they're middle-aged and they're panicking and going to cash. We saw that in 1987, and we saw that in fall of 1998. In those cases it didn't pay not to stick with a long-term investment approach.

The second thing we're seeing is people are not facing up to their losses and their bad investment decisions, and not selling the funds and the securities that they probably should be selling and repositioning that money into better funds, such as the ones I mentioned.

TSC: Any other thoughts on what's going on in the market or other common themes that you're seeing out there?

Dion: I would suggest to investors that they spend less time watching CNBC and do other enjoyable things with their time, such as starting their spring cleaning and getting ready for graduations and weddings and things like that.

I think people are just too overwhelmed with what's going on with the market, and I think they need to relax, and we'll get through this like we have many other times. We feel pretty strongly that the United States is going to provide the goods and services to the rest of the world, and strong U.S. companies will do fine over the next 12 to 24 months.