How Fidelity Growth Company’s Big Nvidia Bet Influences Its Rating

Key Morningstar Metrics for Fidelity Growth Company

• Morningstar Medalist Rating: Gold
• Process Pillar: Above Average
• People Pillar: High
• Parent Pillar: Above Average

Fidelity Growth Company’s FDGRX long-running success continues under its outstanding leadership.

Steve Wymer has run this fund for more than 25 years, earning a place not just as one of the industry’s longest-tenured large-growth managers but also as one of its most talented. Despite the fund’s huge asset base of over $120 billion, Wymer has executed his process without missing a beat: It has been among the large-growth Morningstar Category’s best-performing funds over the long term as well as in 2023 through November.

The fund has become more defined by its top holding, Nvidia NVDA. Since becoming one of the fund’s most prominent picks in 2016, the stock has climbed at least 40-fold in market value, thanks in large part to its blockbuster results in 2023. Despite Wymer paring Nvidia back somewhat as it has outperformed, the stock’s share of the portfolio over the past year has doubled to more than 12% of assets. That’s a huge position size relative to the stock’s roughly 5% share of relevant large-growth indexes; it topped the Nvidia stakes of virtually all other U.S.-sold funds, aside from tech funds; and it marked an all-time-high position size for the fund, which before 2021 rarely held more than 8% in a single stock.

Nvidia is riskier than most. Although it is the leading provider of graphics processing units and boasts a sound balance sheet, above-average margins, and durable competitive advantages, its valuation today hinges on the nascent and skyrocketing end market for artificial intelligence graphics processing units, where the emergence of alternatives or intensified competition are plausible concerns, according to Morningstar’s equity analyst team.

This fund, however, has never presented itself as tame. Wymer has long been willing to embrace profitless firms he thinks possess exceptional growth potential—notably in the biotech industry—which reliably lands the fund in the high-growth section of the Morningstar Style Box and can subject it to steeper drops than the Russell 1000 Growth Index (the category’s benchmark) during market pullbacks. Although many of those budding hopefuls have petered out over the years, Wymer has shown a knack for spotting and successfully investing early in big winners, such as Nvidia, Shopify SHOP, and Lululemon Athletica LULU.

The fund’s heft is a disadvantage in that it limits Wymer’s ability to nimbly trade or hold big positions in names he favors without exceeding ownership limits. Even so, the fund, which has long been closed to most new investors, remains exceptional.

Fidelity Growth Company: Performance Highlights

Since Wymer took charge in January 1997 through November 2023, the fund’s no-load share class gained 12.2% annualized, far outpacing the Russell 3000 Growth Index’s 9.2% and average large-growth peer’s 8.1%.

Wymer’s penchant for fast-growers and his willingness to hang on to relatively pricey fare has upped the fund’s volatility relative to peers and the benchmark, as measured by standard deviation. Still, the fund has typically posted benchmark-beating risk-adjusted results.

The fund’s relative performance has been remarkably consistent under Wymer. Since his start, its monthly rolling three-year returns have beaten the bogy 95% of the time and have ranked in the category’s top quartile nearly as often.

Typically sensitive to the market’s daily gains and losses, the fund tends to stumble more than most during drawdowns but excel on the upside. That partly explains its success in 2023 through November, when its 39% return comfortably outpaced the index’s 35%. It was the stellar gain of Nvidia, the fund’s largest holding, that accounted for a huge portion of its outperformance. A handful of other highflyers, such as Salesforce CRM and Nutanix NTNX, also helped.

On the other hand, the fund’s above-index biotech stake has fared poorly in over the past half-decade as the industry has posted meager returns—or losses in the case of smaller-cap biotechs like the ones this fund traffics in.