At the Top of Fidelity’s Heap

07/08/2008 12:00 am EST

Focus: FUNDS

Jim Lowell

Partner & Chief Investment Officer, Adviser Investments

Jim Lowell, editor of Jim Lowell’s Fidelity Investor, names the two Fidelity fund managers who’ve posted the best performance in 2008’s first half.

We buy the manager, not the fund!

The best investment you and I can make is in a manager who has beaten his or her benchmark, whose outperformance has been relatively consistent and long-term, and whose funds have not shown significantly more volatility than their benchmarks. A steady hand at the helm, even if the market and their fund is skyrocketing, is essential to delivering sustainable, long-term risk-adjusted returns.

2008 has put every manager and investor to the test. Managers who were most focused on energy, materials, industrials and technology names fared best, and those who were bottom fishing or bound to more defensive sectors like financials and health care were given hard performance pills to swallow.

Along such lines, Leveraged Company Stock and Independence stood tall.

Fidelity Independence (FDFFX) was our Hot Hands fund [for 2008], but not without caveats relating to its manager who had had a disastrous prior run in the last bear market. Still, since switching from mid- and small-cap stocks to larger-cap names, the manager, Rob Bertelson, had managed to resurrect himself—a feat not duplicated by any other manager in our database… ever.

At midyear, his fund has returned 6.4%—a feat not duplicated by any other manager this year, save one, Tom Soviero (see below). Bertelson withstood the temptation to bail out of his energy bets early, and benefited handsomely. But with 31% of this funds assets in energy names (like Ultra Petroleum, Valero, EOG Resources, Quicksilver), it’s going to remain both volatile and vulnerable to a protracted sell off if such occurs and if Bertelson doesn’t trade wisely ahead of such an event.

Tom Soviero of Fidelity Leveraged Company Stock (FLVCX) has jumped from the third spot in the December rankings to the top spot this time around. His top-ranked status reflects his stock-picking expertise. The portfolio continues to become even more concentrated in his top ten picks (29.4% of the fund’s assets now vs. 27% six months ago). The fund remains a unique diversifier; most growth-oriented investors could benefit from including it in their mix by virtue of the fact that it won’t correlate with anything they currently own.

One big bonus if you have owned it since the beginning of the year—it is up 7.1% year to date, which is something we can’t say about other funds and areas of the market at this time. Energy still amounts to almost half of the names. Industrials (12.4%), materials (11.7%), and technology (9.9%) represent his other, biggest stakes. Together, they look like a road map whose performance success swings on a global growth hinge. We can continue to look to this fund to trade around energy prices to a certain extent.

The top ten holdings include Exterran, Forest Oil, Range Resources, Chesapeake Energy, Freeport McMoran Copper and Gold, El Paso, Celanese, Service Corp International, Alpha Natural Resources, and Teekay.

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