@MJG:
>> if a portfolio were assembled using all 10 funds in equal parts, that portfolio would have delivered a higher compound return with less standard deviation than an S&P 500 benchmark.
I have been following that analysis since the 1980s when some of these Selects were introduced, and have found it to be mostly true as well, somewhat inexplicably, and always wondered why Fido did not offer a fund of funds.
>> Diversification is alive and well.
You are saying 10 Selects is more diversified than SP500?
>> So is the Aerospace and Defense industry. That's a huge industry employing over 2 million workers. It's like a battleship; it's hard to change direction.
As someone who has been downsized three times the last decade from large and taken-over defense R&D companies, I can attest that this is not altogether true, not at all.
>> The commercial part of it will continue to grow slowly (like 3% this year) as aircraft deliveries are solid. The military budget is similarly solid.
Uh, maybe in some senses, but mutual funds do not invest in (say) VA hospitals, and the Darpa-dependent (ONR, ARL, NSF) companies whose work and products may get hit in an HRC administration may not do as well as in the past. Otoh, Fido manager track these sorts of developments and budgets funding very closely and presciently.

Hi InformalEconomist,
Thank you for bringing the discussion back on topic. We sure have a tendency to divert our attentions elsewhere.
Fidelity does have an impressive lineup of fund choices. I ran a quick analysis of the .10 funds mentioned in the referenced article. Over the last 10 years, if a portfolio were assembled using all 10 funds in equal parts, that portfolio would have delivered a higher compound return with less standard deviation than an S&P 500 benchmark. Diversification is alive and well.
So is the Aerospace and Defense industry. That's a huge industry employing over 2 million workers. It's like a battleship; it's hard to change direction. The commercial part of it will continue to grow slowly (like 3% this year) as aircraft deliveries are solid. The military budget is similarly solid. The need for American military supremacy is not challenged by either our population or our elected government officials.
Have a happy New Year. I certainly will.
Best Wishes.

3 of the "best" funds for 2016 on the list are Select Portfolios (Aerospace and Defense, Health, Consumer Staples) and one is a real estate fund.
I can see the logic to holding a health care fund and a real estate fund (I own one of each long term).
As a conversation topic, wouldn't the health of the Aerospace and Defense fund also depend on congressional budget strings?

I should maybe take that back, since Jeb's econ and tax policies are laughably destructive:
http://www.slate.com/blogs/moneybox/2015/11/10/jeb_bush_and_marco_rubio_want_absolutely_insane_tax_cuts.html
Whoa.

Depends on the size of the losses, value of those losses, opportunity costs.
Do you want to be out of the market for a month? Or if you move that money to other funds for just a month, what are you hoping for?
If you're hoping for a gain, then when you sell (to move the money back to your original funds) you'll have short term gains that will be taxed at ordinary income tax (not cap gains) rates, which somewhat defeats the purpose of the move. If you're hoping for the fund not to go up, then what's the point? (Though you would be able to claim any loss.)
If (in the case of PONDX) you're just looking for income (i.e. monthly dividend, not appreciation), how much do you expect to get in a month vs. getting 1% in a bank account? That difference is approximately your opportunity cost, give or take the risk of PONDX or your replacement fund changing in value over the next month.
It may be better to think of moving the money to other funds for a year (to avoid the short term gain problems). If the market goes up in 2016 you'll still wind up recognizing gains, but at least they'll be long term. You have to weigh that tax cost against the losses you'll recognize now.
Looking at PRWCX, the shares that lost ~10% might be worth selling; I'm not sure I'd sell shares bought at the beginning of this year (~4% loss) - a lot of risk (in moving money around, possible short term taxes, etc.) for a small write off. So if you do a partial sale, these are the shares I'd keep (more below).
PONDX is different for a couple of reasons. One is that the monthly div reinvestments this year have had small losses (2-3%). So you may be looking at smaller losses per share. On the other hand, moving money to a different bond fund and back may be "cheaper" - as I described above, you generally don't expect much appreciation from bond funds.
Still, it's a volatile fund in a volatile category - a similar replacement fund could go up or down a percent in a month. If it goes up, that's better than keeping the money in cash. If it goes down (and tracks PONDX) then you would have lost the money anyway, and meanwhile you realize the loss for 2016 instead of later. Not that much volatility for bond funds, even funds like this, so the risks are less in moving money around.
If you're going to do a partial sale (as with PRWCX), then I'd suggest telling your broker (or TRP if you're invested directly) that you want the cost basis to be actual cost (specific shares), with the default method specific shares and the secondary method being highest first or tax utilization. You need to do that a day or two before the sale - the brokers I've been dealing with won't switch from average cost to actual cost (any other method) in less than a day.
This is important because you want to maximize the losses you're recognizing. If you use average cost, then all the shares you sell will be treated as having the same cost - which means you'll be averaging in the cost of even those shares that went up in value. On the other hand, if you use an actual cost method, then the cost of the shares sold will be the real costs, which for many shares will be above the average.
You notify the broker, and then when you sell the shares (or the next day) you notify the broker which shares you sold. It's easiest doing it online at the time of the sale. The system will let you pick the shares you're selling, and you just check off the most expensive ones until you've picked enough shares. Or if you told the broker to sell highest first, this will happen automatically for you. That will maximize the loss you recognize.
One other point: reinvested dividends will create wash sales if you don't sell your full holding. That means that some of the losses won't be counted now. You don't lose them, you just defer them. It's not terrible, and these days, the broker will do the calculation for you. If you purchased 10 shares this month (through reinvestment or separate purchase), then the losses on the oldest 10 shares will be deferred (not counted now).
The bottom line is: is taking this loss now of enough benefit to be worth these maneuvers? Taking the losses now and buying back means that you'll have bigger gains to pay later (since you're resetting the cost at a lower price).
I took a fair number of losses this year, but most years I don't even though they're available to me. And I did it with funds that were easy to replace or ones that I wanted to get out of. Swapping back into equity (or volatile bond) funds entails risk and possible tax costs. It's an easier decision when one has a long term replacement fund in mind.

@ MFO Members: It was not the double-digit year I expected, but I can complain about my fund portfolio.
Regards,
Ted
As Of 12/24/15:
PRHSX: 13.70%
FBTCX: 10.70%
QQQ: 10.16%
PFF: 3.78%
SPY: 2.15%
Total Average Return:
8.098%

Continuing....
Most of the sectors are fairly close, except for Consumer Cyclical and Financial Services - pity. But the broad "super sectors" (Cyclical, Sensitive & Defensive) are spot on. It is also a shame that the blended E.R., at 45 bps, is 16 bps higher than SPHQ.
But again, after March 2016, SPHQ will no longer "be" SPHQ. It will be a very different E T F with very different holdings, "trying to pass" as the old SPHQ.
Another comment. If you look at the [Documents] tab of SPHQ, and open up the fact sheet,
you will see a graph suggesting that the ETF has underperformed the S&P 500. While this is true over the life of SPHQ, it is not true since the SPHQ index last changed at the end of June, 2010.
According to M*, over the last 5 years, SPHQ has outperformed Vanguard's S&P 500 Index Fund Admiral Class by about 73 bps per year, with risk (measured either by Standard Deviation or Beta) that was about 10% less than the 500 Index.
In other words, by stapling the new post-June 2010 index onto the SPHQ in 2010, Powershares produced an E T F that looked like an underperformer, in their own marketing materials.
Other risk measures from M* are available here:
http://performance.morningstar.com/fund/ratings-risk.action?t=SPHQ
Morningstar sector allocations are below, for MPGFX, SPLV, their 50/50 blend, and SPHQ.

Exp Ratio	65 	25	45 	29 
Sector	        MPGFX	SPLV	BLEND	SPHQ
Basic Materials	11.60 	4.31    7.96 	6.79 
Consumer Cyc	5.13    3.01 	4.07 	19.21 
Financial Svcs	12.99 	16.99 	14.99 	4.71 
Real Estate	0.00 	6.82 	3.41 	0.83 
Cyclical	29.72 	31.13 	30.43 	31.54 
Comm Svcs	0.00 	4.17 	2.09 	0.79 
Energy	        2.83 	0.00 	1.42 	1.26 
Industrials	32.25 	19.31 	25.78 	29.03 
Technology	7.37 	0.00 	3.69 	4.17 
Sensitive	42.45 	23.48 	32.97 	35.25 
Cons Defensive	8.69 	20.44 	14.57 	16.77 
Healthcare	19.15 	13.48 	16.32 	10.45 
Utilities	0.00 	11.44 	5.72 	5.97 
Defensive	27.84 	45.36 	36.60 	33.19 

FYI:
It's the worst year for asset allocation funds since 1937.
A 2.2% gain in the S&P 500 is roughly the best anyone could do
Regards,
Ted
http://www.bloomberg.com/news/articles/2015-12-28/the-year-nothing-worked-stocks-bonds-cash-go-nowhere-in-2015

@Anna that's a great attitude to have! I hope 2016 is also "boring" for you...and a bit more profitable! ;)

I have to admit to buying two stocks this past year that followed his basic tenets. I kept watching people buying Sketchers ( SKX) and always out of stock in some styles at the stores, I started researching it. Took the plunge at $39, but sold out at $57 after watching it stall, go down, back up to 60 etc. Of course then it soared up to $150 by the time run was over. Then it split. Well still made some money. #2 was White Wave (WWAV) which I kept seeing flying off the shelves in my Supermarket. Again, researched it, bought it at 29 and still holding (its now 40), but it has been as high as 52. Long term hold this time :).

I'll take 2015 any year. I'm only a tad "richer" but 2015 is the first year since we retired that we had no major or semi-major medical events. It's been a wondrously boring year.

2015 Good Riddance! You were *#/*?& pathetic!!

FYI: The onetime mutual-fund rock star says the famous advice isn’t quite so simple.
Regards,
Ted
http://www.marketwatch.com/story/peter-lynch-25-years-later-its-not-just-invest-in-what-you-know-2015-12-28/print

FYI: exception of Japan and, less so, some in Europe, developed markets are flat or down this year-to-date.
We will use year-to-date total return (closing prices plus yield) through December 22. [1] SPY, the US equity ETF for the S&P 500 cap-weighted index, had a total return of 0.75%. The equal weighted ETF for the same 500 stocks is RSP. Its total return was -3.42%. The worst performing sector ETF was in energy. XLE was -23.29%. ACWX is the iShares MSCI global index without the US. Its total return is -5.74%. ACWI includes the US and holds over 1200 stocks in developed and emerging markets worldwide. Its total return through December 22 [1] was -2.42%.
Regards,
Ted
http://www.ritholtz.com/blog/2015/12/2015-goodbye-2016-hello/print/

FYI: Gunning for yield from bond funds is a loaded bet.
Regards,
Ted
http://www.marketwatch.com/story/junk-bond-debacle-has-bond-fund-investors-feeling-like-its-2008-again-2015-12-28/print

Thank you all for your answers. I still have some doubts selling funds to recognize loses.
My specific situation is following:
I started MF investing only1-2 years ago and practically all my MF purchased this year experienced loses after dividend payments and year end capital gain distributions. To recognize the loses I would need to close almost all my positions. Is it really a good idea?
For examples my 2 best funds PRWCX and PONDX. Their prices now are the lowest in 2 years. That means all my contributions (including reinvestments from capital gains and dividends) to these funds during that time have loses. Do you recommend to sell them now with intension to purchase again in a month? (For closed to new investors PRWCX that probably means selling not 100%).

Mutual funds that might be useful in replicating - to some degree - the soon-to-vanish SPHQ (an E.T.F. that currently follows the S&P High Quality Rankings Index) would seem to include the following:
DRIPX: The MP 63 Fund http://portfolios.morningstar.com/fund/summary?t=DRIPX
MPGFX: Mairs & Power Growth Fund http://portfolios.morningstar.com/fund/summary?t=MPGFX
VDIGX: Vanguard Dividend Growth Fund http://portfolios.morningstar.com/fund/summary?t=VDIGX
The first fund [DRIPX] is obscure but available at TDAmeritrade.
ETFs that could be used to construct similar exposure include:
FTCS: First Trust Capital Strength http://portfolios.morningstar.com/fund/summary?t=FTCS
NOBL: ProShares S&P Dividend Aristocrats http://portfolios.morningstar.com/fund/summary?t=NOBL
SPLV: Powershares S&P500 Low Volatility http://portfolios.morningstar.com/fund/summary?t=SPLV
VIG: Vanguard Dividend Appreciation http://portfolios.morningstar.com/fund/summary?t=VIG
XRLV: Powershares S&P500 Ex Rate Sensi L V http://portfolios.morningstar.com/fund/summary?t=XRLV
However, I have mixed feelings about the third and fifth ETFs [SPLV & XRLV], since they are offered by Invesco Powershares, the same folks that are in the process of monkeying with (i.e., IMHO destroying) SPHQ by switching its index to one that has a very different exposure - in terms of sectors and industries - than that (currently) used by SPHQ when it was posting it's admirable record over the last 5 years or so.
Keeping it 'simple' (HAH!), a 50/50 blend of MPGFX and SPLV appears to have very similar exposures and performance, based on historical performance (and for 2009 - 2011, when SPLV did not exist for full year,using SPLV Index returns from S&P website less SPLV tracking error of 26 bps from E T F.com).
Looking at individual holdings of each...

MPGFX owns 50 stocks
SPLV owns 100 stocks
SPHQ owns 132 stocks (current index, until March 2016)
The 50/50 blend of MPGFX & SPLV has 139 stocks. There are 11 stocks shared between MPGFX & SPLV, representing about 19% of the balance of the blended 50/50 portfolio.
Comparing the "BLEND" (MPGFX+SPLV; 50/50) with SPHQ, there is an overlap of 61 stocks. This represents, by dollar balance, 45% of BLEND and 49% of SPHQ.
Of course, most of the "heavy lifting" is being done by SPLV, since both it and SPHQ are subsets of S&P 500. Comparing SPLV only with SPHQ, 51 stocks are shared between these two ETFs. They represent, by balance, 51% of SPLV and 39% of SPHQ.
Again, let me know - via a post here - if you folks come up with other potential 'substitutes'. Thanks.

VF, I see nothing broken about this fund, although I see no compelling reason to buy or hold this ALT fund. In my portfolio, an ALT position is definitely not a buy and hold/forget holding. In this space, I think that it is wise to go with what is working.
I realize that some folks don't care for Cliff Asness and his AQR funds, but some of their ALT funds are really doing well. In this space, we own a 10% position in QMNIX, but I also like QSPIX (closing to new investors on 1/29/16), QLEIX, VMNFX, and even the very volatile MCXIX. The institutional AQR funds continue to be available for a $100 minimum + TF in both taxable and retirement accounts.
Peace out.
Kevin

FYI: Convertible bonds offer access to two otherwise separate security markets. They start out as corporate bonds, which are debt instruments that carry the normal attributes of bond offerings: protection of principal, income generation and favorable position in a bankruptcy situation. If certain criteria are met, the holder of the bond may convert the corporate bonds into common stock of the issuing company. This allows investors flexibility in terms of equity appreciation or an escape from interest rate risk.
Regards,
Ted
http://www.investopedia.com/articles/investing/122415/top-6-convertible-bond-funds-2016.asp
M* Convertible Fund Returns: http://news.morningstar.com/fund-category-returns/convertibles/$FOCA$CV.aspx

Always, ALWAYS book taxable losses.

As I tried to describe above, I don't agree with this, except as a simple rule of thumb if you don't want to get into more detailed calculations.
For example, suppose you are married. The 15% bracket goes up to $74,900. Suppose your taxable income (Form 1040 line 43, notordinary income) typically runs about $76K, including $2K of recognized cap gains.
Let's suppose you've got a loss of $2K that you are debating about taking (for tax purposes).
By assumption, you've got $74K of ordinary income, and $2K of cap gains. The first $900 of those cap gains are taxed at 0% (because $74K of ordinary income, plus $900 of cap gains is still below the 15% bracket limit of $74,900).
The other $1100 of cap gains is getting taxed at 15%.
If you recognize a loss of $1100, you get to save that 15% on the last $1100 of gain. Relatively speaking, a nobrainer. But if you choose to recognize your whole potential loss of $2000, the extra $900 in losses is wasted. It reduces your cap gains to $0, but the last $900 weren't getting taxed anyway, so what's the point?
Instead of having $900 worth of losses "in the bank" that you could recognize January 2, for 2016 taxes, you've squandered the opportunity by using those losses to reduce a gain that wasn't being taxed.
Similar reasoning applies at the 39.6% bracket, where cap gains rates transition again - here from 18.3% to 22.3%. You may be better off deferring the loss if it takes you below $464,850 in taxable income. A problem we should all have. I mention it simply to illustrate that it is not the 0% tax on cap gains that creates this situation, but any transition in tax rates.
There are other situations where recognizing losses may be suboptimal. The ones I'm familiar with follow this general pattern of crossing a threshold amount (often some form of MAGI).