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Tillinghast Back at Fidelity Low-Priced Stock

PIMCO wades into dividend investing and more...

Morningstar Fund Analysts, 01/13/2012

Fidelity Gets Back Star Manager, Shakes Up Its Ranks Fidelity Low-Priced Stock FLPSX manager Joel Tillinghast has returned from his four-month leave of absence, just as the firm announced major changes at several funds.

Tillinghast's return is welcome news for investors. He took a break from running the fund he has managed since 1989 in order to write a book and mentor some of the firm's new analysts. In his absence, Fidelity assigned several analysts that had worked closely with him, including Jamie Harmon, Justin Bennett, Katherine Buck, Rayna Lesser, John Mirshekari, and Shadman Riaz, to oversee the day-to-day stock-picking duties. While those were temporary assignments, Fidelity now says the comanagers will keep running 5% of the fund's assets (or about $1.6 billion). Harmon, the manager of Fidelity Advisor Small Cap FSCDX and leader of the team while Tillinghast was away, will control the largest slice. There is no evidence that Tillinghast is on his way out--indeed, he plans to manage the fund for several more years. However, Fidelity did say this was part of the succession plan at this offering. For now, the management structure makes sense. By sticking around, Tillinghast, whose strategy in many regards is more art than formula, can more easily pass along his knowledge to the fund's heir apparent.

Tillinghast's return wasn't the only news. Fidelity also said it had given the boot to Fidelity Overseas FOSFX manager Ian Hart. In contrast to most of the firm's international managers, Hart often diverged boldly from his peers and the MSCI EAFE Index--an approach that led to more misses than hits during his five-year tenure. Hart's successor is Vincent Montemaggiore, who most recently delivered solid results amid a highly challenging environment at Fidelity Select Banking FSRBX. Unlike Hart, who ran Fidelity Europe Capital Appreciation FECAX before running Overseas, Montemaggiore has little international investing experience. His previous assignments, which included Fidelity Select Industrial Equipment FSCGX, required global research, but his investments were primarily domestic in nature. Montemaggiore's lack of experience running both international and diversified strategies is a potential red flag for investors here.

In addition, Fidelity backpedaled on its earlier announcement that Jeff Feingold, who recently took the helm at Fidelity Magellan FMAGX, would continue to run his previous charges: Fidelity Trend FTRNX, Fidelity Large-Cap Growth FSLGX, and Fidelity Advisor Strategic Growth FTQAX. Feingold is now solely concentrating on Magellan. Meanwhile, Scott Offen, who recently took the reins at Fidelity Equity Income II FEQTX is being taken off of Fidelity Value Discovery FEQTX, a fund he has run since its 2002 inception.

Those decisions seem to break from a trend occurring inside Fidelity. In some cases, especially with the firm's sector offerings, managers have been allowed to retain their roles running the smaller funds while taking on larger diversified offerings. Indeed, Dan Kelley, who is taking the duties Feingold is shedding, will continue to run Fidelity Select Construction & Housing FSHOX, a fund he has successfully run since 2007. Sean Gavin, the current manager of Fidelity Select Transportation FSRFX, is adding Value Discovery to his duties. Montemaggiore will continue to run Fidelity Select Banking even as he takes over Fidelity Overseas.

PIMCO Jumps on Dividend Trend
PIMCO, one of the world's largest fixed income shops, recently joined the crowded equity income field by launching two dividend-focused funds. PIMCO Dividend and Income Builder PQIIX and PIMCO EqS Dividend PQDIX will search the globe for high-yielding stocks (although the first offering will also invest in fixed income). Managers Brad Kinkelaar and Cliff Remily have joined PIMCO from Thornburg Investment Income Builder TIBAX, which has a solid record since launching in late 2002.

PIMCO's foray into dividend-paying equities follows PIMCO co-CIO Bill Gross' 2011 Morningstar Investment Conference keynote speech in which he recommended blue-chip, dividend-paying stocks. He argued the yields of large, global, dividend-paying stocks looked attractive relative to Treasuries. The launches continue the expansion of PIMCO's equity lineup under Neel Kashkari. The PIMCO EqS lineup now has three funds.

The dividend theme has gained momentum lately since equity income funds--the tag usually associated with them--held up well as a group in 2008 and overall offer the chance for both capital appreciation and yield. Indeed, the average fund in that universe has a 2.5% dividend yield versus 2% for the S&P 500. That's helped attract assets. These funds have taken in over $16.6 billion the last year, according to Morningstar fund flow data. In addition, other fund companies have launched or acquired dividend funds. For example, Goldman Sachs recently announced its acquisition of tiny $170 million Rising Dividend Growth fund ICRDX, which has a solid five-year record.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.
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