Fidelity is known for growth investing, but two up-and-coming managers invoke value investing legend Warren Buffett.
Last month, I highlighted
changes in Fidelity's value lineup. But as
The contrast in strategies may not be as stark under new overseas manager Vincent Montemaggiore. Predecessor Ian Hart employed a growth-at-a-reasonable-price strategy, placing the fund in the foreign large-blend camp, where it's likely to remain. Montemaggiore, like Buffett, is an alum of the Columbia business school and takes cues from Buffett teacher Benjamin Graham, the legendary value investor. In Grahamesque fashion, he looks for stocks cheap enough to give him a large margin of safety in case his earnings expectations prove too optimistic. Whereas Graham looked for "cigar butts"--extremely cheap but often low-quality companies--Montemaggiore screens for firms with high returns on invested capital and low valuations.
While Kelley and Montemaggiore share Buffett's method for evaluating companies, they execute their strategies differently than the Berkshire chairman might. Buffett advocates portfolio concentration: The fewer companies you own, he argues, the better you'll know them. The managers, though, are still cut from Fidelity cloth and, like their counterparts, keep broad portfolios. You can expect them to hold more than 100 stocks, and they're likely to keep even a smaller proportion of their portfolios in their largest holdings. And though Buffett isn't afraid to exclude swaths of the market, the managers' benchmark-conscious styles mean they'll be invested in sectors that may look less attractive on fundamental or valuation grounds than others.
As promising as the managers' approaches appear, the trick will be in the execution. And that's where my confidence diminishes. Neither has led a diversified fund before. Kelley's pedigree is solid; he worked for well-regarded value investor Scott Black of Delphi Value earlier in his career. But his limited track record at Fidelity Select Construction & Housing FSHOX says little about his prospects at Trend. Montemaggiore navigated the financial crisis with skill at Fidelity Select Banking FSRBX, but it's unclear how well he'll fare on a bigger (and more international) stage.
Fidelity has long been a place that welcomes a diversity of styles and personalities. While Kelley and Montemaggiore still need to prove themselves, it's encouraging to see signs this tradition hasn't faded.
This article originally ran in Morningstar's Fidelity Fund Family Report.