Christine Benz: Hi, I'm Christine Benz for Morningstar.com.
Fidelity may no longer be the largest fund company, but the firm's funds still appear in plenty of investors' portfolios.
Joining me to provide a year-to-date recap of Fidelity funds is Katie Reichart. She is a senior fund analyst with Morningstar.
Katie, thank you so much for being here.
Katie Reichart: Thanks for having me.
Benz: Let's discuss the headlines, Katie. Year-to-date, when you look across asset classes, where do the typical Fidelity funds land in terms of their category percentile rankings?
Reichart: Well, they started out 2013 doing pretty well across all asset classes. The average fund is really in the top half of the category.
Benz: Are there any standouts in terms of asset class performance when you look across the firm's funds?
Reichart: I would say diversified domestic equity funds, international equity, and muni funds have done particularly well--more in that top-third [percentile] range.
Benz: Muni funds have long been a really strong area for them.
Let's discuss some of the funds that have had the top performance in terms of relative performance, and also absolute performance.
Fidelity OTC, we've got it rated as a Bronze fund currently. Let's talk about what has gone well for that fund year-to-date?
Reichart: That fund is up about 25% for the year-to-date through mid-July, and it's one of the top-performing large-growth funds. That fund typically invests in some over-the-counter stocks. It typically is very tech heavy. And even though it's had a pretty significant stake in Apple, it's really overcome that with other picks, such as Green Mountain Coffee Roasters and Tesla.
Benz: Let's discuss Large Cap Stock; that's another fund that has performed very well year-to-date, and we recently increased its rating. It had been at Bronze before; we've now moved it up to Silver.
Reichart: Year-to-date, it came up off a really strong 2012, and it's up 24%, so it's beating the S&P, which is up about 20%, and it's beating about 90% of its large-blend peers.
Matt Fruhan has been running the fund since 2005, and I think our analyst just got a little more comfortable with him and saw that the fund had really performed well in different market environments. He tends to blend cyclical growers and secular growers very well. So he did well with some of the homebuilding stocks. Now he has an overweight to financials, which has worked out year-to-date. So generally [we have] a higher conviction level on that fund.
Benz: In terms of laggards, when you look across the firm's lineup, one fund that jumped out at you is Small Cap Stock. Let's talk about what the story is there. I think in absolute terms, its returns have been decent, but [it's been] a relative laggard year-to-date?
Reichart: Exactly. It's up about 16%, so nothing too bad, but lagging about 90% of its peers, and its trailing returns across many time periods look poor, too. But the manager has only been there since late 2011, and the fund is actually rated Bronze. We have a pretty favorable impression of Lionel Harris, who had a good record at [Fidelity] Small Cap Growth before coming to this fund. So [we're] still thinking he can turn things around there.
Benz: So, we don't think that its recent performance is cause for concern.
Benz: Let's segue to talk about some of the biggest, most widely held funds. When you think about that, top of the list is always Contrafund. Let's talk about how that has done year-to-date; that's a fund that we've got with a Silver rating currently.
Reichart: That fund is up about 17% year-to-date--still lagging the S&P a little bit, about middle of the category. That fund is one of Apple's biggest shareholders, and that did really well for it in the past, [but] it started weighing on returns a little late last year and into this year. Will Danoff trimmed that position pretty aggressively, and as of May, it was about 4% of assets--so, still higher than the S&P's weighting. So, that's weighed on returns a little. Some of his gold picks have weighed on returns a little, but still good absolute returns.
Benz: Growth Company is another fund that is very widely held . We've got its rating at Silver, currently. It, too, has had a little bit of an Apple story going on there. What's going on with that in terms of performance?
Reichart: Steve Wymer actually had about a 9% stake last fall, and also, like Will Danoff, trimmed it down to about 4%, but he has managed to overcome that stake this year. The fund is up about 21%, ahead of 85% of its peers. Just some really good stock-picking. Regeneron is a name that Steve Wymer has held since 2002, so he's done well with some of those picks.
Benz: Tremendous winning streak for Growth Company, if you're lucky enough own that fund.
Let's talk about Low-Priced Stock, another one of the firm's biggies. How has it performed when you look at its year-to-date performance?
Reichart: It's kind of an eclectic portfolio; it has some foreign holdings. It's in the mid-blend category, so it doesn't look great relative to some of those peers, and its benchmark is actually the Russell 2000. So, it's been lagging both of those year-to-date. It's up about 21%. But again still-solid long-term results, and year-to-date just lagging a little in relative terms.
Benz: I'd like to talk about bonds, Katie, because over the past decade I would say Fidelity's bond shop, and particularly its muni bond area, has emerged as one of our favorite parts of the firm. Let's talk about how they've done, and I'm hoping you can drill in specifically to look at the recent time period where bonds have been shaken, and I'd like to hear how the funds have done?
Reichart: With this environment, this interest-rate shock, if you look at the muni funds, of course they have had some losses; they are not immune to that. But I would say that they've held up a little better than some of their peers. That's because the team really focuses on avoiding taking too much credit risk, interest rate risk, and leverage. So, they tend to be a little more conservative, which is good from a risk standpoint.
Benz: So, in market shocks, they'll tend to hold up well.
How about on taxable-bond funds? In the past, back when I was covering Fidelity's funds, they were known as being a little bit risky on the taxable-bond side, specifically in terms of being willing to take credit-quality risk. How have the funds generally behaved year-to-date?
Reichart: I think some of them are more middle-of-the-pack. One that stands out as doing really well is Fidelity Capital & Income, which is a Silver-rated fund; that's a high-yield fund. And to your point about risk, it invests about 10% in equities, which is certainly atypical for the category. So, that's given it a boost this year, but does invite some risk.
Benz: Katie, thank you so much for being here. A lot of people are very plugged into how their Fidelity funds have done. So we appreciate this overview.
Reichart: Thanks for having me.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.