(04/01/14) Fund Expert Goes "Growthier"

Because February was such a strong month for equities—and for Fidelity’s stock funds—the January sell-off is looking more like an aberration and not a harbinger of another market apocalypse, suggests John Bonnanzio in Fidelity Monitor & Insight.

While fourth-quarter consumer spending has been revised down to 2.6% from 3.3%, that’s still the fastest increase in seven quarters. Also, businesses are spending more on equipment, and US exports rose 9.4%.

Among growth stocks, the number of companies booking revenue growth appears to be rising. This should lend support to growth stocks as the year progresses. As such, we are modestly rebalancing our style exposures to emphasize “growthier” stocks.

These types of stocks are held in Fidelity Blue Chip Growth (US:FBGRX). Unless his fund implodes over the next few months, Sonu Kalra will look back over his five-year tenure on this large-cap growth fund and likely boast that he has beaten around 90% of his peers.

Beating his Russell 1000 Growth benchmark in four of the past five years, his success is no secret: he’s an outstanding stock picker. And, he’s pretty darn good at making the right sector allocations, too.

In the case of the former, he added five percentage points of value via astute stock selection, whereas sector allocations gained the fund’s shareholders almost a full percentage point.

And here’s what we especially like right now: though underweighted in tech, strong stock picking in that arena was a top performance-driver.

The fund’s top holding are Google (GOOG), Apple (AAPL), Gilead Sciences (GILD), Amazon (AMZN) and Facebook (FB).

Along with our desire to slightly deemphasize value stocks, we are also buying Fidelity Mid-Cap Stock (US:FMCSX), which leans towards growth.

True to its name and mission, manager John Roth looks for mid-cap firms where his fundamental analysis projects a future earnings power greater than the market currently expects. (Whereas his S&P Mid-Cap 400 benchmark sports a trailing 1-year P/E of 22, this fund clocks in at a more aggressive 28.)

He places his largest bets where he has the greatest conviction, but manages risk by keeping the size of positions modest and the number of positions large. He has nearly 200 holdings and the top-ten names make up just 13% of the fund.

John served his shareholders well last year with top picks like Tesla Motors (TSLA), a significant performance driver.

The fund’s top holdings are Telsa, Henry Schein (HSIC), United Rentals (URI), Gartner (IT) and Kansas City Southern (KSU).

The fund also has some exposure to pricey biotech. Even so, this is hardly a shoot-the-lights-out growth fund as volatility is below all his mid-cap peers. To that end, this trade actually tempers risk while increasing growth exposure.