Home>Video>Morningstar Minute: A Good Fund Investors Have Used Poorly

Morningstar Minute: A Good Fund Investors Have Used Poorly

Wed, 5 Mar 2014

Due to poor timing decisions, the typical investor in Fidelity Leveraged Company Stock has only captured half of the return of this potentially volatile fund.


Video Transcript

The Morningstar Minute is our quick take on investments, the market, economic indicators, and more. Join us every day for fresh insights from our analyst team.

Shannon Zimmerman: The fund we are going to discuss is Silver-rated Fidelity Leveraged Company Stock. What investors need to know about this fund, is that it's a terrific fund that they may not be able to use very well. Most investors over the long haul have not been able to do that.

The fund has delivered an annualized return of 10.2% over the last decade, and all of that track record belongs to the same manager, Tom Soviero. However, the typical investor has done far worse than that based on the poor timing decisions they've made around buying and selling the fund's shares.

The central risk in a fund like this is baked into its name, Fidelity Leveraged Company Stock. These are companies that are held in the portfolio that have less-than-pristine balance sheets to say the least, higher debt/capital ratios. So when market heads south, the fund heads south in hurry. In 2008, it lost 54%. But in 2009, of course, when the market was rewarding risk, it shot up and gained about 59%.

But investors, again, because of that volatility, were making poor timing decisions about when to get in and when to get out. And so they earned about half of what the fund has delivered over the last 10 years.

The most important thing I would say is that investors really need to know themselves as investors and make sure that the risk profile they think they have is the one that they actually have.

I think 2008 was a very instructive year for a lot of investors, and if you come to the conclusion that, yes, you are an aggressive investor and, yes, you will be able to stick with this fund through thick and thin--and know that there will be thin--this could be a good fund for you to consider. However, only [consider it] in very small doses and in the context of a well-diversified portfolio focused on core holdings.

  1. Related Videos
  2. Related Articles
  1. Top Bond-Fund Picks for Retirees

    Morningstar's Eric Jacobson runs the gamut with some of his favorite fixed-income funds, including ideas for core, short-term, multisector, high-yield, and muni exposure.

  2. How Enticing Are Munis Today?

    As investors realize the impact of new tax increases, municipals are going to become more valuable--but research is key to finding value and avoiding trouble, says Fidelity's Kevin Ramundo.

  3. Checking the Scorecard on Fidelity Funds

    Morningstar senior fund analyst Christopher Davis sizes up performance and stewardship at the fund family and discusses some of his favorite Fidelity funds.

  4. Fidelity Delving Into Private Companies

    In an attempt to see a longer runway for growth, some of the group's largest funds, including widely held Fidelity Contrafund, are investing in private companies.

  5. 2015 Leaders and Laggards in Fidelity's Lineup

    While just slightly more than half of Fidelity's U.S. equity funds beat their category averages, funds in fixed income, international equity, and allocation fared much better, says Morningstar's Katie Reichart.

  6. Morningstar Minute: A Fund That Defies Logic

    This Fidelity fund manager doesn't let a huge portfolio asset base hold him back from delivering an admirable record of success.

  7. 2014 Leaders and Laggards in Fidelity's Lineup

    Two thirds of Fidelity's domestic-equity funds have beaten their category averages year to date, but some notable funds, including Contrafund and Low-Priced Stock, have looked more sluggish.

  8. 3 Upgrades for Fidelity Funds

    We recently raised our Analyst Ratings for Fidelity Overseas, Intermediate Bond, and the Freedom Index target-date funds.

©2017 Morningstar Advisor. All right reserved.