One newsletter editor bases his picks on the performance of the person running the fund rather than the fund itself. By Steven Goldberg, Contributing Columnist November 27, 2007 Fidelity switches fund managers as often as Britney Spears makes the tabloids. That makes it difficult to tell which managers are truly talented and which have simply inherited a fund with a good record.Enter Jim Lowell. A former writer at Fidelity, Lowell launched Fidelity Investor newsletter ten years ago. Rather than studying the returns of funds, Lowell studies managers' past returns. "My basic principle is buy the manager, not the fund," he says. Lowell examines the same things many fund analysts do: past returns relative to benchmarks and similar funds, volatility and performance during bull and bear markets. The difference is that he has built a database that tracks each Fidelity manager. Says Lowell: "Usually, Fidelity starts a manager on a single sector fund. If the manager does well, he or she gets another sector fund or two, and finally a diversified fund. By the time that happens, we have insight about how well he or she manages money." Advertisement Lowell has done a fine job, according to Hulbert Financial Digest, a newsletter that tracks the performance of investment newsletters. From the time Hulbert began tracking the newsletter at the start of 1999 through October 31, 2007, Fidelity Investor's average portfolio has returned an annualized 11%. That compared with an annualized return of 5.3% for the Dow Jones Wilshire 5000, a broad-based stock market index. What's more, Lowell has delivered those returns with less volatility than the overall market. But if you had just bought the average Fidelity no-load stock fund, you would have gained an annualized 9.8% over those years, according to Morningstar. So Lowell's gains are solid, but not knock-your-socks-off super. Plus, the newsletter's model portfolios trailed the market, on average, in 2003, 2004 and 2006, Hulbert reports. Hulbert's analysis shows that Lowell's fund picking, rather than his limited attempts to time the market, has added value. What market timing Lowell has done -- raising cash or retreating to bonds -- has actually detracted from performance. Currently, Lowell's favorite Fidelity funds include Leveraged Company Stock (symbol FLVCX), International Small Cap Opportunity (FSCOX) and Blue Chip Growth (FBGRX). Dividend Growth (FDGFX) and Small-Cap Growth (FCPGX) are also on his recommended list. The only diversified fund on his sell list is Disciplined Equity. Advertisement The newsletter offers five portfolios. Four start with Lowell identifying the most attractive parts of the market. Using his manager database, he then picks funds to fill each slot in the portfolio. For most long-term investors, the Growth portfolio, which is designed to have about the same volatility as the overall stock market, is the best choice. A new portfolio, Global Growth, is a purer play on manager performance. Driven entirely by Lowell's manager performance rankings, it contains the six top-ranked domestic managers, the three top-ranked international managers and the top-ranked sector manager. The portfolio is evenly divided among those ten managers. The biggest negative to Lowell's newsletter is that he trades a fair amount. On average, Hulbert says, he holds funds less than a year. Unless you're investing solely in a tax-deferred account, that means you'll have to hold on longer than Lowell recommends -- or get hit with a bill for short-term capital gains taxes. This year, Lowell says, he's trading more frequently than usual because the market has been so uncertain. Fidelity Investor (800-572-7907, Fidelityinvestor.com) costs $199 annually. The newsletter has proven its worth -- but it's not a good investment unless you deploy a significant amount of money using Lowell's recommendations. Advertisement As with any investment approach, you'll likely have to stick with it for the long term to profit from it. Currently, Lowell, like many experts, is worried about the market. It's not just subprime mortgages, he says. In terms of over-borrowing, "we're so overextended on so many fronts," he says. By that, he means consumer debt, the trade deficit and the federal budget deficit. Consequently, his Growth portfolio is 12% in cash -- not counting the holdings of the underlying funds. Lowell is bullish on foreign stocks. His growth portfolio is 31% invested abroad. Says Lowell: "Over the next three, five and ten years, I think you'll see double-digit returns from overseas and high single-digit returns from the U.S. market." Steven T. Goldberg (bio) is an investment adviser and freelance writer.