Fidelity Real Estate Income Fund Q4 2025 Review

Performance Summary

During the fourth quarter of 2025, the Retail Class shares of the Fidelity Real Estate Income Fund achieved a positive return of 1.00 percent. This performance notably surpassed the Fidelity Real Estate Income Composite Index, which recorded a decline of 0.52 percent over the same period. Real estate securities, as tracked by this composite index—a blend of real estate equity and fixed-income instruments—experienced a downturn of 0.52 percent in Q4. A key factor driving the fund’s superior results compared to the benchmark was the strong contribution from its preferred stock holdings.

Investment Strategy Overview

The Fidelity Real Estate Income Fund is designed to deliver above-average income alongside potential capital appreciation. It accomplishes this by strategically allocating assets across a diverse array of commercial real estate securities. These include common stocks, preferred stocks, corporate bonds, and commercial mortgage-backed securities, or CMBS. This multifaceted approach enables the fund to capture opportunities in various segments of the real estate market while balancing income generation with growth prospects.

Key Portfolio Management Insights

One critical aspect of the fund’s management involves carefully handling interest rate and credit risks within its portfolio. To mitigate interest rate sensitivity, the fund prioritizes high-dividend-paying stocks and steers clear of long-duration bonds that offer narrow spreads. Furthermore, it places significant emphasis on investment-grade securities and floating-rate instruments that provide compelling yields, ensuring resilience in fluctuating rate environments.

Portfolio Allocation Adjustments in Q4

In the fourth quarter, the fund made deliberate shifts in its asset allocation to capitalize on emerging opportunities. Specifically, the allocation to common stocks was increased from 21 percent to 24 percent, signaling growing confidence in carefully selected real estate investment trusts, or REITs. Cash holdings were modestly trimmed from 7 percent to 5 percent, while the 29 percent position in investment-grade bonds remained steady. These changes were influenced by favorable bond yields and positive outlooks for targeted equity exposures in the real estate sector.

Primary Contributors to Q4 Outperformance

Several segments and strategic decisions were instrumental in the fund’s ability to outperform its benchmark during the quarter. The preferred stock subportfolio excelled, surpassing the MSCI preferred stock index by an impressive 3.38 percent. Similarly, the common stock selections outperformed the FTSE NAREIT Index by 3.29 percent. Additionally, the fund’s overweight positioning in commercial mortgage-backed securities, chosen for their appealing credit spreads, provided a further boost to relative performance, highlighting the effectiveness of active management in navigating market conditions.

Broader Context and Fund Positioning

These results underscore the fund’s disciplined approach to investing in real estate-related securities amid a challenging environment for the sector. By maintaining a diversified mix and making timely adjustments, the portfolio not only weathered the quarterly decline in broader real estate indices but also generated positive returns for investors. The emphasis on income-producing assets with prudent risk controls positions the fund well for ongoing market volatility, particularly as interest rate dynamics and economic factors continue to influence real estate valuations.

Outlook and Strategic Focus

Looking ahead, the fund remains committed to its core objective of providing superior income and growth through real estate investments. Managers continue to monitor macroeconomic indicators, sector-specific trends, and security-level opportunities to refine the portfolio. This proactive stance, combined with a focus on high-quality, yield-oriented holdings, aims to sustain performance advantages over the composite index in future periods. Investors in the fund benefit from this blend of expertise and adaptability in one of the most dynamic asset classes.