We dig into the shop's first-quarter firmwide ownership information.
If a large-growth rally materializes, Fidelity will be ready. According to March 31 stock ownership information just filed with the SEC, Fidelity moved even further to the right of the large-growth style box during the first quarter, at the aggregate level. Examining Fidelity's big positions and its recent buys and sells reveals a lot about the shop's investment biases. It's also interesting to see how Fidelity's views on various stocks square with those of Morningstar equity analysts.
Fidelity's biggest position as of March 31 was Google
Fidelity added to its stakes in Apple
Waiting for Growth
There are several explanations for why Fidelity's domestic-equity fund returns have been lackluster in recent years. But don't discount this fact: Fidelity has 27 funds in large growth, the worst-performing of the nine style box categories since 2000. Fidelity runs no funds in the small-value category, the best performer. Fidelity funds are heavy on hardware stocks, which have generally lagged the market, and are light on areas, such as utilities, that have done well.
Key Fidelity managers such as Will Danoff of Contrafund, Harry Lange of Magellan, and Steve Wymer of Growth Company are tilting their portfolios toward firms they believe can grow their earnings regardless of where the economy goes. That's not a move that has worked lately, which helps explain why many of Fidelity's domestic-equity funds have lagged. But if large growth comes back, Fidelity should benefit in a big way.
Growth at What Price?
As Google and other top 10 holdings demonstrate, Fidelity portfolio managers will pay up for stocks. Morningstar equity analysts believe Google's share price vastly overestimates the company's growth potential. Apple, AT&T, Celgene, and Fortress Investment Group are also trading well above Morningstar's intrinsic value estimates.
But not all of Fidelity's moves are super-aggressive, in our view. The shop flashed contrarian stripes in buying beaten-down homebuilder stocks, as Morningstar equity analysts view Lennar, KB Home, and Centex as good buys. Bank of America, Cisco, Disney, and Western Union also look attractively valued to Morningstar equity analysts, so those additions may have been opportune. Why Fidelity sold down its PetroChina stake is unknown; we do know that Fidelity has no history of incorporating social criteria into its stock-picking.
We also know that many Fidelity managers are "thematic" investors, who often buy stocks because they see them benefiting from an economic or social trend. One popular Fidelity theme is increased global aerospace spending, so it wasn't surprising to see the firm holding big stakes in Honeywell