On August 1, Fidelity took direct aim at index fund competitors Vanguard, Blackrock’s iShares ...
Export & Multi: A Unique Niche
06/20/2016 9:00 am EST
We recently spoke with fund manager Gordon Scott; his past 11 years at Fidelity have focused almost exclusively on one thing: outperforming the S&P 500 through thoughtful stock selection, notes John Bonnanzio, editor of Fidelity Insight & Monitor.
With a correlation of 0.98 relative to the S&P it is fair to ask if Fidelity Export & Multinational (FEXPX) is merely a closet index fund? Gordon’s fund has many attributes of the S&P: principally, its sector allocations are much the same.
Even its dividend yield of 2.4% is right in line with the market. And, holdings-wise, the biggest stock positions overlap considerably. (Though with 141 holdings versus 500 for the index, they actually diverge considerably.)
But probe a little deeper and you’ll discover that Export’s investment characteristics and returns bear less of a resemblance to the S&P and its large-cap blend peers, than it does to more value-oriented offerings.
As such, Gordon tells us that Export fills a “unique niche” in that it’s Fidelity’s most “value-leaning” large-cap blend offering. Setting aside style for the time, what’s Export’s allure? For starters, July marks Gordon’s second year on the fund. To say the least, it had been a chronic laggard relative to both its benchmark and its peers.
Moreover, it tilted toward growth investing, thereby competing with some of the best-managed growth funds in the country. Indeed, for a fund that had been around for over two decades, its assets under management were scrawny: less than $2 billion.
But the changes under Gordon were swift and beneficial to shareholders. For example, the fund shed shares of two traditional value sectors — telecom and utilities. Gordon owns neither as he calls them “low-ball bond proxies” whose valuations have been driven too high by yield-seekers.
This dramatic step has allowed him to redeploy 6-7% of his assets into sectors that he believes offer both better values and higher quality. Indeed, “quality and valuation” is the investment mantra that drives Gordon’s entire stock selection process.
While Gordon doesn’t see the broad market selling at historically high valuations, as mentioned, there are sectors and stocks he’s staying away from as they are trading “at the upper end of historic valuation ranges.”
This approach makes it easier for him to stick with his natural inclination to practice his brand of value investing: paying an “attractive price” for high-quality, well-managed companies.
One shouldn’t hold this fund with the expectation of the manager hitting grand slams. Instead, you should look to it to crank out attractive risk-adjusted returns. That should make it a comfortable holding for investors looking for a bit less risk than the market.
Lastly, the fund does have an annoying 0.75% short-term redemption fee on shares held fewer than 30 days; our hope is that Fidelity will kill the redemption fee.
By John Bonnanzio, Editor of Fidelity Insight & Monitor
Related Articles on FUNDS
Investors often ask me how to build a portfolio that holds its own in down times but hands them soli...
Real estate investment trusts (REITs) have been in a trading range the last couple of months, but th...
What a great few days at MoneyShow San Francisco! The show was larger than it had been in several ye...