Choose Wisely From Fidelity's Varied Large-Blend Menu

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.

Fidelity Advisor Diversified Stock FDTOX
Since taking over this fund in late 2006, manager James Morrow's strategy has evolved. He started out as growth investor with a contrarian, buy-on-the-dips angle and was quite willing to trade around positions and make big shifts. That approach led to the fund getting walloped in the October 2007-March 2009 bear market, but also a meteoric rise in stocks' 2009 rebound. More recently, Morrow has slowed the pace of trading at the fund and moved toward larger, more financially stable firms, a tack that's met with some success and tamed volatility a bit. All told, the fund has edged out the S&P 500 during his tenure--and he's off to a decent start at large-value Fidelity Equity-Income FEQIX, which he took over in 2011. But we'd like to see his altered approach play out over a longer span.

Fidelity Value Discovery FVDFX/Fidelity Advisor Equity Value FAVAX
Although these identically run funds have "value" in their name, their previous skippers generally had freedom to invest where they saw fit. At Fidelity, where scant few hardcore value investors dot the landscape, it's almost inevitable that the funds have drifted to the blend column. Scott Offen took over Value Discovery at its 2002 inception and Advisor Equity Value in 2006 and had success at both charges, but he relinquished his duties at both in January 2012 after taking the helm of large-value fund Fidelity Equity Dividend Income FEQTX (previously named Fidelity Equity Income II) in October 2011.

Stepping into the breach at these funds is Sean Gavin, a 2006 hire in his first stint at a diversified Fidelity stock fund. Gavin, who previously worked at value shops Boston Partners and Delphi Management, has moved the fund more solidly into large-cap and value territory. He also doesn't plan to deviate too much from the Russell 3000 Value Index. He may have a tough time using his contrarian instincts in this constrained format, and he's largely unproven as a portfolio manager.