Values Strategies: Unique Opportunity
09/01/2016 9:00 am EST
Our Unique Opportunities model portfolio, as its name implies, includes funds that we believe are truly distinct from their respective peers, with managers who pays little heed to his or her respective benchmark, explains John Bonnanzio, editor of Fidelity Monitor & Insight.
We first purchased Fidelity Value Strategies (FSLSX) — managed by Tom Soviero — in our Unique Opportunities Model in November 2015.
We then added to it in April, and then grew the position even further this month. As a result, Value Strategies is now the model’s largest holding.
Over the past nine months, the model has deemphasized both mid-cap value and mid-cap growth stocks. Most recently, we’ve jettisoned international small-cap growth stocks from the portfolio.
This begs the question: Why are we so excited to own more of Value Strategies, a large-cap value fund? Hint: It’s about the manager, not the fund category.
Soviero's benchmark is the Russell Midcap Value Index. But that’s always been something of an academic point, as he’s largely ignored it since taking the fund’s reins in 2010.
In fact, a look at the fund’s top-5 sectors shows a big underweight in financials, a traditional value sector, and overweight in growth sectors like health care and consumer discretionary!
That’s because Tom looks for stocks that are cheap in absolute terms (using metrics such as price-to-earnings or sales), or stocks that may be cheap relative to industry peers.
It doesn’t matter where he finds them — whether in traditional growth or value sectors.
Granted, that may not sound too unique, but the twist with Tom is that many of these firms are distressed credits (as a former high-yield bond manager at Fidelity he uses his credit analysis skills on these firms).
He likes the stuff that others are ignoring, especially when a turnaround is not anticipated by Wall Street. That, quite frankly, is when the best bargains are to be had.
Top five sectors are financials, healthcare, consumer discretionary, materials and industrials. And as Value Strategies’ 9% turnover indicates, Tom patiently waits for the market to recognize the value he sees in a company.
So we are not drawn to this fund because it’s currently in the large-cap value space, but to take advantage of Tom’s unique skills in identifying cheap stocks in any sector.
By John Bonnanzio, Editor of Fidelity Monitor & Insight