Three Good Fidelity Growth Funds

09/09/2008 12:00 am EST

Focus: FUNDS

Jim Lowell

Partner & Chief Investment Officer, Adviser Investments

Jim Lowell, editor of Fidelity Investor, finds three funds that should gain while growth is in favor.

Growth funds present investors the opportunity to invest in companies that promise to increase their stock’s market value through earnings growth. They tend to be smaller companies and/or in rapidly growing industries. (But they could, like Intel or IBM, be large players expanding market share in a mature industry.)

Growth stocks typically rise in value more than other stocks, but they are far more volatile and subject to greater declines in price too, especially if a domestic and/or global recession is at hand. Conversely, when inflation comes knocking, growth stocks can be more rewarding since they have the potential to grow their earnings at a faster clip, are less vulnerable to commodity price spikes, and are less likely to get you caught trying to time a specific economic cycle.

The next step: figuring out which growth funds to own.

Manager Jennifer Uhrig of Fidelity Blue Chip Growth (FBGRX) invests in the name-brand, blue-chip companies you’d expect: Microsoft, Cisco, IBM, Schlumberger, and Procter & Gamble.

But while technology names are her biggest stake (27%), it’s underweight her Russell 1000 benchmark’s 29% mark. Consumer discretionary names (her second largest stake) is her biggest overweight vs. benchmark: 15% vs. 9%. Her biggest underweight? Industrials (6% vs. 13%). What this tells us: Uhrig is less confident that the heated global growth rates of the past can be sustained, while she remains basically bullish about the US consumers’ will and ability to buy.

Manager Peter Saperstone of Fidelity Fifty (FFTYX) invests in approximately 50 to 60 stocks believed to have high potential for growth. This can lead him into some very interesting picks, rarely representative of a simple mega-cap mix. As such, this fund makes sense as a complement to other growth funds.

His current top ten holdings include Flowserve, Research in Motion, Peabody Energy, Molson Coors Brewing, and Halliburton.  Because of the concentrated nature of this portfolio (52 names), sector weightings are nearly irrelevant.
Manager Edward Best of Fidelity Large Cap Growth (FSLGX) invests in companies with market capitalizations similar to those found in the Standard & Poor’s 500, and those believed to have high potential for growth.

His top ten holdings tell a tale of a global net being cast—but when the net is hauled on deck, you find only 3% in foreign stocks. This radical aversion to foreign names (compared to the rest of his peers) must be met with more than a few raised eyebrows around the water cooler.

So, while his weightings hew close to the market benchmarks, when you look at his holdings, you can see how he aims to at least ride the global wave (from technology to consulting to defense and aerospace) [with names such as] IBM, Exxon Mobil, Texas Instruments, Accenture, and BMC Software.

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