Best Funds in Fidelity's Sweet Spot

Fidelity’s lineup of growth-oriented funds has seen terrific success in recent years. Consider the environment for U.S.-focused large-cap growth funds over the past decade: Despite their eye-popping average annualized gains of 16.9%, fewer than one seventh of all the large-growth Morningstar Category’s 250 or so actively managed mutual funds beat the category’s Russell 1000 Growth Index, which gained 19.4%. The category’s highest-achieving 10 funds gained between 21% and 29% annualized from Nov. 1, 2011, through Oct. 31, 2021. Fidelity funds were most prevalent among that cohort, claiming four spots.

Growth investing has long been the firm’s forte. It remains home to a handful of the industry’s most talented equity managers, most of whom run their strategies solo. Over 100 research analysts scattered across the globe feed them ideas and help keep tabs on their portfolios, many of which hold between 300 and 500 stocks.

The high caliber of Fidelity’s growth-oriented equity team makes the firm a worthwhile destination for active management of that space. But the firm’s menu of more than 20 distinct large-growth strategies can be daunting, so here’s a streamlined study guide to five of our favorites.

The Style-Pure

Fidelity Growth Company FDGRX has consistently been a standout performer on manager Steve Wymer’s watch, which began in January 1997. He has masterfully drawn on his own experience and the insights of Fidelity’s analysts to maintain strong results despite the strategy’s huge asset base, which was recently around $100 billion across all vehicles. He was Morningstar Domestic-Stock Fund Manager of 2017 for his work on this strategy, which earns a High People rating and a Morningstar Analyst Rating of Silver. The fund is one of the category’s best options, but it has been closed to new investors for more than a dozen years. Let’s move on to discuss the more-viable options for a would-be shopper of a large-growth fund.

Since 2009, Sonu Kalra has capably guided Bronze-rated Fidelity Blue Chip Growth FBGRX. His willingness to pay high price multiples for companies that he thinks have sustainably high growth rates courts risk, but over the past decade he’s consistently made good calls. That’s especially been the case within the consumer discretionary and communication services sectors, which combined for 43% of the fund’s assets recently, versus the Russell 1000 Growth Index’s 31% share.

Kalra often tries to get in early, initiating modest positions in small- or mid-cap stocks with large-cap potential. In 2010, for instance, he built a 20-basis-point stake in electric-car maker Tesla TSLA when its market cap was roughly $2 billion. Since then, despite operational issues that underpinned many shorter-sellers’ theses, Kalra maintained conviction in what he thought was a disruptive industry pioneer that had the potential to take market share from incumbents, expand its addressable market, and eventually turn a profit. The company’s $1 trillion-plus valuation as of November 2021 suggests that the market now concurs, and the fund’s nearly 4% Tesla weighting in early 2021 owed largely to its appreciation in the portfolio over the years. (Kalra has since reduced the strategy’s stake.)

Fidelity Advisor Growth Opportunities FAGCX receives a Silver rating for its risk-conscious manager, who has shown he can skillfully balance the portfolio’s dangers and opportunities. Since he became the fund’s manager in July 2015, Kyle Weaver has demonstrated a knack for assessing the upsides and downsides of portfolio prospects that are off the beaten large-growth path. He’s distinguished the fund most by holding relatively light stakes in the Russell 1000 Growth Index’s largest constituents and investing substantially in small-cap companies, private markets, and overseas.

While many of his stock picks have seen tremendous success, their elevated price multiples, paltry earnings, and hard-to-predict fortunes have also often invited high volatility, as measured by standard deviation, which has exceeded all but a few large-growth peers on Weaver’s watch.

Weaver is attentive to the risks, both at the stock and portfolio levels. He has shrewdly managed individual positions by pruning during times of market euphoria and rebuilding during moments of panic. He diversifies across sectors and avoids significant concentration in the fund’s top positions.

His best ideas have sprung from companies with proprietary technology that undergirds their business models. That skill set comes from his roughly decade-long tenure as a tech- and telecom-focused analyst and manager of two tech-centric Fidelity funds.

Wide-Ranging Growth

Like most of their category peers, Fidelity’s growth funds tend to be benchmark-aware and loosely tether their sector weightings to those of their prospectus benchmarks. But some Fidelity growth funds measure themselves against the S&P 500, not the category’s Russell 1000 Growth Index benchmark. This often makes a big difference in the funds’ sector exposures. Recently, the S&P 500 had more exposure than the growth index to financials, consumer defensives, energy, and utilities, but much less in technology. Thus, the funds are spread out across the blend and growth regions of the Morningstar Style Box.

Fidelity Contrafund FCNTX, a Silver-rated behemoth with assets of around $150 billion, is the most prominent example of a fund resembling the S&P 500. Its embrace of banks and insurers--relative performance laggards over the past decade and scarce in the growth index--have weighed on the fund’s results during that span.

The strategy earns a High People rating for its manager, Will Danoff, who has skillfully steered it for more than three decades. He looks for best-of-breed companies with competitive advantages, improving earnings potential, and capable leadership.

He is particularly fond of founder-led firms. Relatively big helpings of companies such as Berkshire Hathaway BRK.A, Meta Platforms FB, Salesforce.com CRM, and Netflix NFLX are what distinguish the portfolio most from the Russell 1000 Growth Index at the stock level. As comanager of Silver-rated Fidelity Advisor New Insights FINSX, he expresses nearly identical views in his sleeve that amount to roughly 80% of that fund’s assets. The remainder is run by newcomer Nidhi Gupta.

The portfolio manager of Bronze-rated Fidelity Magellan FMAGX, another notable S&P 500-benchmarked fund, has a much shorter track record at the helm. Sammy Simnegar officially took over as sole manager on Jan. 1, 2020. He hadn’t run a U.S.-focused strategy prior to that, but he has demonstrated success running foreign-stock mandate Fidelity International Capital Appreciation FIVFX since 2008 (typically owning significant numbers of U.S.-based firms) and Fidelity Emerging Markets FEMKX from 2012 until 2019.

Simnegar installed the same approach at Fidelity Magellan that he’s used on those funds. It is among the large-growth category’s more unusual. He goes overweight in the S&P 500 stocks he likes by about 80 basis points and puts no assets in the rest. The latter fall short for reasons such as mediocre growth rates, weak balance sheets, excessive valuations, or failing to fit into the “mega-trends” he sees as powering economic growth. Only the few stocks with index weightings greater than 2.5% can be owned at an underweight level rather than 0%. (In July 2021, there were no such underweightings.)

Experienced Giants or Younger Managers With More Flexibility

One clear divide is you have more-experienced managers running huge sums of money in Fidelity Contrafund and Fidelity Growth Company and less-experienced managers running less money in Fidelity Magellan, Fidelity Advisor Growth Opportunities, and Fidelity Blue Chip Growth. That makes for a fairly clear trade-off when you pick your growth investor.