A Fidelity Favorite

12/31/2004 12:00 am EST

Focus:

Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

Jim Lowell is certainly consistent; he is one of just two advisors in this report to stick with the same Top Pick that he chose last year-Fidelity International Small Cap. Over the past year, the fund returned over 20%, and he continues to call the stock a "stellar buy."

"Fidelity International Small Cap (FISMX) is a clear and distinct buy. It is benchmarked against the EAFE small-cap index. But it is not an emerging markets fund. Finding good stocks (277 of them recently) in diverse countries is its mantra, but almost exclusively in the established markets (exception: 4% in Hong Kong), among small-cap companies whose stocks look best set to continue to avoid the stodgy behavior which stagnates many firms in Europe and Japan. Whether looking overseas or here at home, smaller firms are more likely to be priced inefficiently than are the blue chips, meaning active management can make more of a difference-for good or ill- on the small-cap side of the fence, and Fidelity's international managers and analysts have a solid record of beating the averages.

"This fund will add diversification to a global portfolio, or to a global position within a domestic-focused portfolio. While I generally frown on team-led efforts, international funds are one place where I can see the advantages. In inefficient markets, better information, better analysis, better execution, typically translates into better relative and absolute gains- and with International Small Cap, I think there are more gains to be had. We first rated the fund a buy based on its December 2002 launch, based as much on the niche focus of the fund as it was on our deep understanding of Fidelity's analytical strengths in inefficient overseas marketplaces. And while it's up over 100% since then, my conclusion is that it will remain a stellar Buy for 2005."

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