Disastrously impatient shareholders have earned less than one fourth of this fund's stellar 10-year gain.
From its name to its strategy to its battle-tested manager's background as a high-yield credit researcher, Fidelity Leveraged Company Stock lives
Twenty-two year Fidelity veteran Tom Soviero has run this unusual mid-cap blend fund since July 2003, delivering wildly volatile yet in some ways utterly predictable performance. En route to a category- and benchmark-shellacking cumulative return of nearly 153% between his arrival and June 2011, the fund has enjoyed approximately 1.3 times the category's gains--and an almost exactly proportionate share of its losses.
Just as predictable: As they often do with such volatile vehicles, investors have had a difficult time using this fund well. The mammoth gap between its 10-year total return (13.6%) and investor return (3.2%) makes it a nearly perfect example of the kind of funds that reward the kind of patience not many investors actually have.
Which is in some ways understandable. Staking out equity positions mainly in debt-laden, below-investment-grade firms, after all, is risky business, and this fund tends to fare best when investors' appetite for risk grows. It soared, for example, during 2009's so-called junk rally. Amid signs the economy wasn't going belly-up, shares of companies with less-than-robust financial health raced ahead, and the fund thumped average rivals by 22 percentage points. Its gain of nearly 60% on the year secured a spot in the peer group's top decile.
The Not-So-Shocking Truth
During the previous year, of course, the fund had fallen into a performance chasm, losing more than 37% in 2008's fourth quarter alone. Amid the year's supersonic flight from risk in general--and from debt in particular--the fund took a nosedive, clipping off more than half its value and crash landing in the category's 98th percentile.
That was just as understandable as 2009's equal-but-opposite trajectory. Still, while neither year's results should surprise anyone familiar with the fund's history and its mandate, flows data indicate that many investors weren't just surprised--they were shocked.
Since 2008, Fidelity Leveraged Company Stock has hemorrhaged money. Outflows began modestly, with the fund experiencing net redemptions of $90 million over the course of 2008, according to Morningstar's estimates. The trickle has become a torrent in subsequent years. Despite 2009's success, $283 million headed for the exits; in 2010, shareholders redeemed almost $800 million worth of their shares.
Outflows persist, but the pace has slackened of late, and Soviero says the more incremental nature of recent redemptions hasn't posed a problem from his perspective. Still, for the year to date through June 2011, it's suffered another $160 million exodus, leaving the fund's asset base, while still substantial at $4.2 billion, at just over half its 2007 figure.