JPMorgan (JPM) has broken out to new highs this week, but sits near a perilous technical level, writ...
Fidelty: Going for Growth
08/06/2004 12:00 am EST
"Growth funds are the pre-eminent investment option for most investors," says Jim Lowell. In his latest Fidelity Investor, he undertakes an in-depth review of all of Fidelity's growth funds. Here's an overview of those that earn his buy rating.
"Not all growth funds are created equal. Proof? From the beginning of 1998 through May 31 of this year (through markets bull, bear, and recovery), our Growth portfolio is up 89.7%, while the S&P 500 is up 26.7% for the same period. (Note: Several of these funds, as stated below, are closed to new investors. But you can generally buy the 'closed' fund if it’s offered in your company’s 401k plan or if you already own some shares.)
Going For Growth
"These funds each seek maximum gains from growth stocks (stocks which are expensive relative to assets or current earnings, but which are also expected to grow at above-average rates), with more risk than the broader market. All did great in the technology-led bull market, and all got hammered in the bear market. Still, each has a different (though overlapping) universe of stocks.
Aggressive Growth (FDEGX) can hold large cap stocks, but mid-cap growth is generally its bread and butter. Aggressive Growth turned in the worst growth fund performance in the 2000-2002 bear market – but blame the manager, not the fund. The good news: the former manager is no longer at the helm. At the end of 2002, manager Rajiv Kaul took over. (He had been running Advisor Aggressive Growth for over a year, and Select Developing Communications and Biotech before that.) This fund now has a reasonable 29% in technology, with a big 33% in health care and 19% in consumer discretionaries.
Growth Company (FDGRX) is all-cap, consistently growth-oriented, and run by Steven Wymer since the start of 1997. Wymer has the strongest record at Fidelity for the growth style. This fund is a solid buy, and despite 2003’s gain is not nearly so risky as it was 4 years ago when many growth stocks were two or three times as high. Wymer currently favors tech.
"These funds can buy any kind of stock, with no particular style orientation, but tend (like the market itself) to be primarily in larger-caps. These funds’ managers have shown more appetite for sector and market (and even company-level) bets than the otherwise similar closet indexers, and they are generally more willing and able to ferret out companies that will beat the averages.
Capital Appreciation (FDCAX) has for several years consistently been in the large-cap blend or growth style. Manager Harry Lange has never been afraid to make stock and sector bets, to load up on what he likes, and eschew what he doesn’t. More important, his bets have paid off more often than not. Right now his tech position is down to a barely overweighted 21%, while consumer discretionary (19%) and health care (18%) positions are significantly overweighted, while financials are underweighted at 11%.
Contrafund (FCNTX) has shown a very low risk of late (a relative volatility of 0.62 for the past 3 years), and very low correlation to the market (69%). The fund has also seen superior performances under manager Will Danoff since 1990. Contra held up extremely well during the 2000-’02 bear market, losing a third less than the market in large part due to Danoff’s outrageously low (as low as 3%) position in technology. In 2003 the fund closely matched the market with a 28.0% return despite its low tech level, thanks to strong individual stock-picking. Top sectors: consumer discretionary, financials and health care.
Dividend Growth (FDGFX) has been a core holding of mine since the inception of this newsletter, based on the stock-picking merits of manager Charles Mangum. Its holdings and correlations are strongly in the middle of the style continuum (i.e., owning both growth and value stocks), but firmly in the large-cap camp. Its 2003 return (up 23.4%) was a bit disappointing, largely due to an overweighting in health care and underweighting in technology. More compelling: his return since he took over the fund at the start of 1997: 95.5% vs. 59.1% for the S&P 500. I expect a healthy dose of stable returns ahead.
Fifty (FFTYX) has recently had a large-cap growth positioning, but it’s been in value and even mid-cap stocks. The fund has the lowest correlation to the market (58%) of any of the large- or even madcap funds. Manager Jason Weiner (since 4/03) has not been afraid to make sector bets. He’s has gotten off to a bit of a slow start at Fifty, but he ran OTC and Contrafund II (now Discovery) with considerable success. Top sectors: technology (31%) and consumer discretionary (20%).
Independence (FDFFX) has a moderate correlation to the market (82%); its mostly large-cap stocks have ranged from the value to the growth style. The fund shares new manager (since 4/03) Jason Weiner with Fifty fund. So far Weiner’s moved Independence into the large-cap growth camp, eliminating the stodgy consumer staples sector; his current top sectors are: technology, 31% (e.g., Yahoo, Microsoft); and consumer discretionary, 15% (mostly media firms like Clear Channel and Viacom).
A Range of Values
"These funds have explicit orientations toward the value style of seeking stocks that are cheap in relation to fundamentals such as earnings, book value, assets, or sales. Some might stray to where they’re listed in the ‘blend’ portion of the three-part spectrum, but they should buy few if any stocks in the growth camp. The funds do vary in terms of average stock capitalization (size), as well as how faithfully they hew to the value style.
Value (FDVLX) has consistently been a mid-cap value fund, but there’s nothing preventing Rich Fentin (manager since 3/96) from moving to large- or small-caps if he’s so inclined. Currently he’s overweighted in industrials (13%) and largely avoiding financials (at 14%, less than half the neutral weight for his value benchmark). He’s even finding value in some beaten down technology names (15% of the fund). The fund beat even most value benchmarks during the 2000-’02 bear market, yet also beat the market on the upside in 2003, and is holding on to a slim lead in this tough year.
Value Discovery (FVDFX) has so far (since its 12/02 inception) been a mid-cap blend fund despite its name. Scott Offen, the fund’s manager since inception, has a strong record running mostly value-oriented selects. He’s made a slightly off-style bet reflecting his current market outlook. His top sectors: financials (at 20%, well below a neutral weighting), technology (at 20% more than double a neutral weighting) and energy (overweighted at 14%).
Value Strategies (FVCSX) has been managed by Harris Leviton for the past 8 years, but it was basically invisible until Fidelity reopened it at the end of January. With 40% of assets in technology and 26% in consumer discretionaries, it must take some work to keep it out of the growth style. While there’s something to be said for style purity, I also have to respect a manager willing to make the kind of outside-the-box bet which proves that he is not willing to accept mediocrity. As it happens, in 2003 Leviton doubled the market’s performance with his smart buys in the bargain basements of tech and consumer discretionaries.
Consistently Mid-Cap and Smaller
"Most stock investors should have at least one mid- or small-cap option to offset large-cap holdings (Spartan Extended Market, Leveraged Company and Value could also fit the bill, as they are concentrated in mid-caps; however, only the first of these is absolutely required to maintain such a positioning.)
Low-Priced Stock (FLPSX ) invests in stocks selling for under $35 per share. The fund has long leaned toward small-caps and value shares. Joel Tillinghast, who has run the fund since its 1989 inception, has shown consistent market-beating performances and is arguably Fidelity’s best stock picker. The fund’s value orientation helped the fund deliver excellent returns in the 2000-‘02 bear market. The fund was also up an excellent 40.8% in 2003. Its return record is especially impressive given the fund’s size: with $30 billion to manage, it’s not easy moving in and out of illiquid small- or mid-cap stocks. Joel has two answers to this problem: 1) He holds over 1000 stocks; 2) He has again had low-priced closed to new investors. (Investors who can’t buy this fund now should instead use Value Strategies together with Value.)
New Millennium (FMILX) is consistently growth-oriented, and has for some time now concentrated in mid-cap stocks. The bad news: It’s closed to new investors. It’s been managed by Nell Miller since its 1992 inception. After good performances leading to a stupendous 1999 (up 108.8%), the fund has had a more middling performance record for the past 4½ years, but Miller’s solid long-term record makes him at least worth watching, as does his eclectic portfolio and low correlation (70%) to the broader market.
"Nobody does growth better than Fidelity – which is not the same thing as saying that they’re perfect. There are, as noted above, managers whose career records are less than stellar, and funds that appear ill-positioned for our current economic and market environment. However, our unique knowledge of the managers helps us overcome such obstacles and keep to our long-term course of significant outperformance with significantly less risk. That’s a proven recipe for growth investing success."
Major markets are waiting on the the policy statement coming out of the FOMC later today, writes Bil...
Crude oil prices should be moving higher than they are, writes Phil Flynn, senior energy analyst at ...
While the UK is focused on the latest Brexit plan, the GBP/USD could react sharply to the FOMC state...