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Choose Wisely From Fidelity's Varied Large-Blend Menu

This list features solid winners, battered options, and question marks.

Greg Carlson, 10/08/2012

When Fidelity lowered the expense ratio of Fidelity Spartan 500 Index FUSEX to 0.1% from 0.19% in 2004, it did so to beat then-behemoth Vanguard 500 Index VFINX on cost. (That fund charged 0.17% then and still does.) However, that fee reduction also made the firm's actively managed funds, many of which are benchmarked against the S&P 500 Index, a little less attractive on the cost front.

Since that time, Spartan 500 Index has more than doubled in size while many of Fidelity's actively managed large-blend funds have shrunk--some in dramatic fashion. Indeed, Spartan 500's current $49 billion asset base is now significantly higher than the combined assets of the 14 actively managed funds advised by Fidelity in the category. Spartan 500's fee cut was not the sole reason, though--some of the largest funds in that group of 14 proceeded to stink up the joint. However, there are still worthy choices among them. Let's run through the full list, from largest to smallest.

Fidelity Dividend Growth FDGFX/Fidelity Advisor Dividend Growth FDGTX
These are arguably the best choices in the group. Larry Rakers has managed the two funds (in an identical manner) for just four years, but he's run diversified Fidelity stock funds for 10. (He previously managed the equity sleeve of moderate-allocation fund Fidelity Balanced FBALX from 2002 to 2008.) Rakers uses an all-cap approach and has a taste for cyclical fare (he favors companies that trade cheaply relative to their normalized earnings), so the funds will probably lag when huge, steady companies lead the market. In 2011, for example, the funds finished in the category's bottom decile. But his stock selection has been strong over time; despite a poor 2011, the funds have beaten more than 90% of their peers during Rakers' tenure.

Fidelity Disciplined Equity FDEQX/Fidelity Tax Managed Stock FTXMX/Fidelity Advisor 130/30 Large Cap FOATX
These three large-blend funds are among the few Fidelity offerings run primarily by quantitative stock-picking models. Manager Keith Quinton has run Disciplined Equity since 2006, Tax-Managed Stock since 2004, and Advisor 130/30 Large Cap (which combines a leveraged long equity portfolio and short sales) since its 2008 inception. The quant models employed by Quinton had a horrendous run during the tumultuous markets of 2008-11, a big reason all three funds have lagged their typical category peer on his watch. The latter two funds have less than $100 million in combined assets due to outflows and are slated to close to new investors soon--we expect they'll soon be merged or liquidated. Beyond its modest fees, there's no compelling reason to invest in Disciplined Equity. Although it performed fairly well in the early 2000s, that was before Quinton took over and made changes to the investment process.

Fidelity Capital Appreciation FDCAX
An old Fidelity hand runs this fund. Fergus Shiel has managed diversified funds at the firm since 1994, with the exception of a 2.5-year period when he left Fidelity to start a hedge fund. He came back in late 2005 to take over this one when then-skipper Harry Lange moved on to  Fidelity Magellan FMAGX. Shiel has long employed a freewheeling strategy; he uses both fundamental and technical analysis, essentially buys whatever looks attractive to him on a risk/reward basis, and trades rapidly. This approach generated strong (though volatile) results during a 1996-2003 stint at Fidelity Independence FDFFX. At Capital Appreciation, Shiel's returns have been streaky in a choppy market, but he's ultimately beaten both his typical peer and the S&P 500 on a risk-adjusted basis. This one is only for patient investors, though.

Fidelity Growth & Income FGRIX/Fidelity Advisor Growth & Income FGIRX/Fidelity Large Cap Stock FLCSX/Fidelity Advisor Large Cap FALAX/Fidelity Mega Cap Stock FGRTX
Matt Fruhan currently manages all of these funds. Growth & Income had $32 billion in assets in 2004 (and the Advisor version had another $2 billion), but it shriveled dramatically after prior skippers Steve Kaye, Tim Cohen, and James Catudal produced bottom-quartile showings each year from 2005 to 2009. Fruhan took the helm of Growth & Income and Advisor Growth & Income in early 2011. He's boosted the dividend payout of both funds and keeps their sector weightings close to those of the S&P 500. It remains to be seen whether he can turn these funds around.

Fruhan has delivered fine returns since 2005 at Large Cap Stock and Advisor Large Cap, but he's had more freedom to deviate from the index at those offerings than at Growth & Income and Advisor Growth & Income. Tilting more toward secular or cyclical growth stocks has worked well at these funds; although the ride has been bumpy, they've beaten the S&P on a risk-adjusted basis and are attractive holdings.

Finally, Fruhan took over Mega Cap Stock in early 2009. He applies much the same strategy here as at the two funds above, but he's fishing from a smaller pond of huge companies. (The fund's average market capitalization is double that of the S&P 500.) Thus far, the fund has handily beaten its benchmark, the Russell Top 200 Index, on his watch. So it's a fine holding for investors who want dedicated exposure to the market's behemoths.

Greg Carlson is a fund analyst with Morningstar.

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