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Does Fidelity's Chairman Eat His Firm's Own Cooking?

Ned Johnson's offbeat portfolio is missing many of his firm's biggest funds.

Christopher Davis, 09/29/2009

Christopher Davis is editor of Morningstar's Fidelity Fund Family Report, a monthly newsletter that offers independent guidance on the fund family and helps investors find the best Fidelity funds. 

Behind modern-day Fidelity is its longtime chief, Ned Johnson. Under Johnson, who is often referred to simply as "The Chairman" within his firm's walls, Fidelity's fund lineup has grown from just a couple of dozen funds to nearly 300, many of them useful, many others not. But interestingly, the mastermind behind Fidelity's sprawling fund lineup leaves vast segments of it untouched by his own investments.

Yes, it's unrealistic to expect anyone, including Johnson, to own every Fidelity fund. And given the preponderance of underwhelming offerings and untested managers in Fidelity's expansive lineup, I wouldn't begrudge those who invest selectively. However, I think it's reasonable for investors to wonder why they should choose funds that Johnson himself avoids.

Johnson is chairman of Fidelity's two fund boards, and, like all trustees, the SEC requires him to report how much he has invested in each of the funds he oversees. Johnson's total stake in the funds is not clear--the government only requires trustees to disclose their investments in dollar ranges, with the highest being "more than $100,000." But as of December 2008, he had at least $1.3 million (and quite possibly more) invested across just 14 Fidelity funds, according to SEC documents.

Johnson's Fidelity Portfolio
Fund                                               Investment Amount
Fidelity Contrafund                       Over $100,000
Fidelity Dividend Growth             Over $100,000
Fidelity Japan                                Over $100,000
Fidelity Japan Smaller Cos            Over $100,000
Fidelity MA Muni Money Mkt  $50,001-$100,000
Fidelity OTC                                 Over $100,000
Fidelity Pacific Basin                     Over $100,000
Fidelity Select Banking                  Over $100,000
Fidelity Select Energy                   Over $100,000
Fidelity Select Energy Service       Over $100,000
Fidelity Select Natural Gas           Over $100,000
Fidelity Select Nat. Resources       Over $100,000
Fidelity Select Pharmaceuticals     Over $100,000
Fidelity Small Cap Stock              Over $100,000
Data as of Dec. 31, 2008
Note: SEC requires disclosure only in dollar ranges, the largest being "over $100,000."

Stock investors pay close attention to whether top executives invest heavily in the companies they manage. They usually regard a big ownership stake as a good sign because managements know (or at least should know) better than anyone how well their business is performing. Similarly, Johnson should have more insight into his firm's inner-workings than outside observers do. So, where he puts his own cash could say something about where he thinks Fidelity's abilities are strongest. Now, I wouldn't regard Johnson's holdings as a buy and sell list. His portfolio may say just as much about his own investing philosophy as it does about Fidelity's strengths.

Don't Try This at Home
In fact, you'd be wise not to follow Johnson's lead too closely. Most financial advisors would tell him his portfolio isn't diversified enough. Of course, the SEC documents provide an incomplete portrait of his portfolio and perhaps it would appear more balanced if we knew more about his investments outside of mutual funds. But from what we can see, it's fair to say he's a relatively aggressive investor with a penchant for racier, niche areas of the market.

Indeed, Johnson's lone core holdings are Fidelity Contrafund FCNTX and Fidelity Dividend Growth FDGFX (he has more than $100,000 in both). I don't fault him for choosing either fund; Contrafund manager Will Danoff is among the best investors in the fund business, and Dividend Growth, now under the tutelage of skilled skipper Larry Rakers, is plenty promising. But Johnson has avoided Fidelity's core foreign offerings altogether, ranging from more mainstream Fidelity Diversified International FDIVX to more eclectic Fidelity Overseas FOSFX. He's also given the value side of the house the short shrift. That's not altogether surprising because Johnson historically has played such an important role in shaping Fidelity's growth-leaning investment culture. His only value-oriented holding is his $100,000-plus investment in Fidelity Value FDVLX, a solid option in its own right but too dominated by mid- and small caps to serve as a core holding. He's avoided competent but bland Fidelity Equity-Income FEQIX, headed up by one of Fidelity's most experienced managers, Stephen Peterson. I'd also mention that Johnson doesn't own famed Fidelity Magellan FMAGX, the one-time Fidelity flagship that has been attempting to regain its bearings in fits and starts over the past few years under manager Harry Lange.

Surprisingly, the 78-year old Fidelity chairman keeps next to nothing in his firm's mostly top-rate bond-fund lineup. Johnson's sole investment is his relatively modest $50,000 to $100,000 position in Fidelity MA Municipal Money Market, a play-it-safe cash holding that hardly showcases his firm's fixed-income prowess, especially in the municipal-bond arena (muni-bond head Christine Thompson and her team won Morningstar Managers of the Year honors in 2003). He certainly could scratch his risk-seeking itch by investing in aggressive high-yield offerings like Fidelity Capital & Income FAGIX, but he's sidestepped them altogether.

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