On August 1, Fidelity took direct aim at index fund competitors Vanguard, Blackrock’s iShares ...
New Manager Steps into Fidelity Value
12/01/2016 9:00 am EST
Jack Bowers is a leading mutual fund expert, focused on the Fidelity family of funds. Here, the editor of Fidelity Monitor & Insight looks at a favored value fund in his portfolio that has undergone a change in managers.
Matt Friedman was named the new manager of Fidelity Value Strategies (FSLSX). Officially, Matt’s been on the fund for just over a month.
As evidenced here, however, portfolio repositioning often begins prior to a manager’s actual stated arrival. To that end, significant changes have already unfolded.
Sector-wise, one of the most pronounced developments has been the nearly five percentage-point reduction in healthcare to 10.6%.
Although this still leaves Value Strategies with a big healthcare bet relative to its Russell Midcap Value benchmark (10.6% vs 4.7%), is it possible that the move portends a more index-like approach? So far, the answer is “no.”
Over the years, Matt’s predecessor, Tom Soviero, paid little heed to benchmarks. That was true here and on his other funds.
But Matt's arrival is already telegraphing a different approach though it certainly isn’t closet-indexing ... far from it. Here are two more examples.
At 15.6% of assets, Value Strategies’ largest sector weight is consumer discretionary. While that’s been nudged lower by Matt, he’s so far been content to maintain the fund’s overweight of about five percentage points.
On the flip side, while Matt has recently more than doubled the fund’s exposure to energy to 5.7%, it remains a significant underweight compared to his benchmark’s weight of 10.3%.
And, in the new S&P/Dow Jones classification of real estate stocks, one would expect an index-following manager to have something close to 15% of its assets in real estate investment trusts and the like. For the time being, Matt is content keeping just 5.5% there.
Not to be overlooked, either, is the fund’s new asset allocation. Whereas 6% or so of the fund had been in bonds with just as much sidelined in cash, all of that is now essentially gone.
And there’s more. Seventy-four holdings have now been expanded to 124, while some international names are gone.
This diversification has been driven partly by downplaying the fund’s biggest company bets: whereas Value Strategies’ top-10 holdings had accounted for 35% of assets, now they are only 21%.
Although the manager change and portfolio repositioning mean that Value Strategies is no longer the fund we initially purchased, it’s important to remember that in the investment business there are many ways to skin a cat.
In initially purchasing the fund, we wanted to increase our large-cap value exposure at the expense of more richly priced large-cap growth stocks.
But even with these recent changes, the fund continues to provide that same style exposure. Needless-to-say, we will be monitoring this Buy-rated fund to discern whether it’s achieving the fund’s objectives and our own.
By Jack Bowers, Editor of Fidelity Monitor & Insight
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