Fidelity has a mutual fund roster filled with stalwarts: portfolios that consistently beat their peers over time, run by solid managers who stay put for decades. Will Danoff, for instance, has managed Contrafund for 23 years. Joel Tillinghast has been at Low-Priced Stock for 24 years. Both Contra and Low-Priced are members of the Kiplinger 25, the list of our favorite no-load funds. But Fidelity has several other funds that are run by an emerging group of stars and that are also worth a look. Here is a rundown of our favorites at the Boston-based behemoth (all figures are through October 16).
See Also: Don't Give Up on the American Funds
Blue Chip Growth (symbol FBGRX). This large-company growth fund often veers more toward the "growth" part of its name than the "blue chip" part. For example, some of its best-performing-stocks over the past 12 month are such highfliers as Gilead Sciences, the biotech firm (up 92% over the past 12 months), carmaker Tesla Motors (554%) and Green Mountain Coffee Roasters (201%). Of course, bigger, more-established names that fit the fund's blue-chip mandate are part of the portfolio, too: Apple (-22.9% over the past year), Coca-Cola (0.3%) and Procter & Gamble (13.5%), to name a few.
Manager Sonu Kalra says many of his fund's stocks are high-quality names, but others are moving toward blue-chip status. Since Kalra took over the fund in July 2009, it has delivered a 21.3% annualized return, beating Standard & Poor's 500-stock index by an average of 3.2 percentage points per year and the typical large company growth fund by an average of 4.4 points per year. But shareholders have to be comfortable with a bumpy ride: The fund has been 14% more volatile than the S&P 500 over the past five years.
Contrafund (FCNTX). With a whopping $101 billion in assets, Contrafund is one of the biggest mutual funds in the country. But manager Will Danoff doesn't sweat the size. He has guided the fund with seeming ease since 1990, focusing on large companies that he believes have above-average growth prospects. Though many large-company funds of a similar size end up resembling the S&P 500--and become so-called index huggers, unable to squeeze out market-beating returns--Danoff hasn't fallen into that trap. Yes, his fund's three-year record trails the market by a hair: 15.1% annualized for Contra compared with 16.0% for the S&P 500. But so far this year, Contra has outpaced the S&P 500 by more than one percentage point.
Danoff is willing to let his winners run and to hold on. When Apple was running high in 2012, Danoff's stake in the firm accounted for 8% of Contra's assets (he's since sold some of his shares, and with the stock's pullback in price, it now represents 3.9% of assets). His go-anywhere mandate probably helps on that front. Danoff can invest in small companies, large companies and foreign companies; at last report, nearly 9% of the fund's assets were in overseas companies, including Bank of Ireland (up 137% over the past 12 months) and Canadian Pacific Railway (up 43%).
Leveraged Company Stock (FLVCX). When borrowed money works in investors' favor, it looks like this: Shareholders put $1 into a company, the firm borrows an additional dollar to put to work in its business, and shareholders get twice as much profit for every buck they invest. That's the kind of leverage that manager Tom Soviero is trying to tap into with Leveraged Company Stock. He buys stock in firms that manage their debt smartly, focusing on those that generate plenty of cash, that are run by management teams with good long-term business plans and that have a catalyst to propel a stock higher in the years ahead.
Soviero has experience with leveraged companies: He used to run a junk bond fund. Instead of studying these companies alongside the other stock portfolio managers and stock analysts at Fidelity, Soviero sits a few floors away with the high-yield debt team. "He has a unique vantage point that's helped him generate an extraordinary record," says Brian Hogan, the chief of the stock-fund group at Fidelity. Indeed. Since Soviero took the reins at Leveraged Company Stock in July 2003, the fund has generated an annualized return of 13.1%, beating the typical midsize-company blend fund (those with a blend of value and growth attributes) by an average of 3.5 percentage points per year. But hang on tight if you buy this fund because things can get rough. The fund lost 54.5% in 2008, more than 15 percentage points behind its peer group and 17.5 points behind the S&P 500.
Low-Priced Stock (FLPSX). This fund has been hugely successful since its late 1989 launch, boasting a 16.8% annualized return since inception. That beats the typical midsize-company blend fund by an average of 1.9 percentage points per year. The fund now has a whopping $44 billion in assets, making it the biggest midsize-company fund in the country. But Fidelity has a way of dealing with such beasts. Though Tillinghast, who has been with the fund since its launch, is responsible for 95% of its assets, six other managers take on the remaining 5%, with each running so-called sleeves. The team has worked together for years, though the newer stewards didn't get portfolio manager status until early 2013.
The tipoff to what makes Low-Priced so unusual is the fund's name. To qualify for inclusion in the fund, a stock must generally trade for less than $35 per share. That price point leads the managers to smaller companies and to large firms undergoing turnarounds. Because the fund has billions in assets, it also leads to hundreds of holdings. At last word, the fund held 879 stocks, ranging from microcaps to megacaps. The average market cap of the fund's holdings is $4.8 billion, according to Morningstar.
New Millennium (FMILX). Since John Roth took over this large-company growth fund in July 2006, he has turned in an annualized return of 8.7%, beating the S&P 500 by an average of 2.3 percentage points per year. Many consider him a rising star at Fidelity (Contrafund manager Will Danoff recently tapped Roth to help him run Advisor New Insights, which has a mandate similar to Contrafund's but is sold exclusively through advisers).
Like Contra, New Millennium is a go-anywhere fund. Roth can troll the entire spectrum of stocks: large company or small company, growth or value, foreign or domestic. But Roth's "sweet spot," says Hogan, Fidelity's stock-fund chief, is in fast-growing midsize companies. (Roth also runs Fidelity Mid Cap Stock.) Although the portfolio has its share of megasize companies--American International Group, Google and Microsoft, for example--its typical holding has an average market value of $16.6 billion, two-thirds the size of other large-growth funds. (Half of New Millennium's assets are invested in small and midsize-company names.) One big midsize winner: financial-services firm Radian Group, which has appreciated 695% since Roth purchased it in early 2009.
Intermediate Municipal Income (FLTMX). The thing about this fund is risk control. Managers Mark Sommer (at the helm since July 2006), Jamie Pagliocco and Kevin Ramundo (both joined in June 2010) keep a steady eye on risk, and they aren't willing to take on more of it to boost returns. That has hurt the fund's relative standing in recent years, as low-quality, high-yield tax-free bonds rallied. As a result, Intermediate Muni Income trailed its peer group, national medium-maturity municipal bond funds, in both 2011 and 2012. But the fund, which has been about one-third less volatile than its peers over the past five years, makes up for that when muni bonds turn south. Over the past 12 months, a difficult period for most bond fund categories, the Fidelity fund lost 1.6%, but that was better than the category's average loss of 2.6%. The fund's 30-day yield is a tax-free 2.1%.
New Markets Income (FNMIX). Few bond sectors suffered as much as emerging-markets debt during the spring-summer bond swoon, which was fueled by a fear that interest rates would rise once the Federal Reserve started tapering its monetary accommodative policies. The market's taper tantrum proved a heavy burden for the sector, which was already reacting to concerns about slowing growth in China and suffering from declining currency values relative to the U.S. dollar. Funds that invest in emerging-markets bonds lost 12.3% from early May to early September . (Among bond fund categories, only long-term government funds fared worse, with an average loss of 15.7%.)
Under manager John Carson, New Markets Income held up better than most, losing 10.2% during the correction. Carlson viewed the selloff as a buying opportunity and added to his position in Hungarian bonds, among other debt. Although emerging-markets bond funds tend to be volatile, over the past ten years New Markets Income has delivered above-average returns with below-average risk, compared with its peers. The fund's 30-day yield is 5.2%.
Finally, a word about two funds that are closed to new investors but open to those who currently own shares: Fidelity Growth Company (FDGRX) and Fidelity Small Cap Discovery (FSCRX). Both funds are run by steady, longtime managers--Steve Wymer and Chuck Meyer, respectively--and each would have a spot on this list were they open to new investors. (So consider yourself lucky if you already own shares--or can buy them in your 401(k)!)
- Mutual Funds