Why We Upgraded This Fidelity Stock Fund

Fidelity Capital Appreciation’s FDCAX managers’ proven ability to use deep individual company research to discover enduring growers earned the fund a Process Pillar upgrade to Above Average from Average in January, which drove an overall Morningstar Medalist Rating upgrade to Silver from Bronze.

Managers Asher Anolic and Jason Weiner focus on growing industry leaders with strong and improving fundamentals, including rising revenue, consistent cash flow, and strong returns on capital. They look at those and other conventional metrics such as earnings growth and gross margins for signs of durable competitive advantages. However, Anolic and Weiner’s deep understanding of business models and long-term growth drivers sets their approach apart. The managers, for example, prefer to own companies that can dominate their niches and become near monopolies, such as ride-hailing company Uber UBER, which Anolic and Weiner think can fend off competition from LYFT LYFT.

The portfolio’s 100 to 200 stocks range widely across sectors and do not hew to any benchmark. The managers’ successful bottom-up stock selection has helped the fund post competitive results in a very competitive area: aggressive growth strategies.

From the October 2018 beginning of Anolic and Weiner’s tenure through December 2023, the fund’s 12.2% annualized gain topped the 11.7% of the fund’s prospectus benchmark, the S&P 500, and the 10.8% of the average large-growth Morningstar Category. It trailed the 14.6% of the category growth index, the Russell 1000 Growth.

Key Morningstar Metrics for Fidelity Capital Appreciation

• Morningstar Medalist Rating: Silver
• Process Pillar: Above Average
• People Pillar: Above Average
• Parent Pillar: Above Average

Recent Personnel Churn Burns

Personnel turnover and other changes at Matthews Asia Dividend Investor MAPIX resulted in a People Pillar downgrade to Average from Above Average for the fund. That, in turn, caused the Medalist Rating for the Investor share class to drop to Negative from Silver.

Matthews International Capital Management has had numerous personnel changes over the past decade. During this period, the firm has reorganized several strategies’ leadership, including by dismissing several portfolio managers because of underwhelming results. This ongoing personnel churn has hurt the investment case for many of Matthews’ strategies. Manager and analyst insights, once a strength for the firm, has waned because of the many departures since 2020.

This strategy’s current management team, which has run Matthews Asian Growth & Income MICSX since 2009, has adopted a more conservative approach. Robert Horrocks, Kenny Lowe, Sid Bhargava, and Elli Lee have shifted the investment focus away from Vietnam stocks toward those from Hong Kong, Taiwan, and Japan, aligning the portfolio more closely with its risk-averse roots. The strategy’s country and sector exposures now closely mirror its prospectus benchmark, the MSCI All Country Asia Pacific Index. According to Morningstar’s risk model, the portfolio currently offers increased exposure to yield (dividend yield plus share repurchases) and quality.

This strategy often lags its peers and benchmark in bull markets, but even considering that, its 2023 performance was disappointing. It gained 5% to the index’s 11%.

Key Morningstar Metrics for Matthews Asia Dividend Investor

• Morningstar Medalist Rating: Negative
• Process Pillar: Above Average
• People Pillar: Average
• Parent Pillar: Average

Bottom-Up Research Capabilities Pay Off

Columbia Corporate Income Institutional 2 CPIRX received People and Process Pillar upgrades to Above Average from Average—raising its Morningstar Medalist Rating to Bronze from Neutral. With almost 40 years of experience, lead manager Tom Murphy is closer to the end of his career than the beginning, but his team of comanagers and researchers is robust enough to mitigate key-person risk. The strategy fortified its team and enhanced its investment process, which helped it post top rankings in the corporate bond Morningstar Category in the last five years. Its big analyst team thoroughly covers and rates 30–40 issuers each in their industries; their work informs portfolio construction and position sizing. The strategy stands out from most corporate bond peers with its high-yield allocation, which typically constitutes 10% to 20% of the portfolio.

Key Morningstar Metrics for Columbia Corporate Income Institutional 2

• Morningstar Medalist Rating: Bronze
• Process Pillar: Above Average
• People Pillar: Above Average
• Parent Pillar: Average