Fidelity's Favorite Funds
Everyone knows Fidelity as the Boston fund giant. But what funds managed by other firms do Fidelity's mavens favor? In addition to running funds, Fidelity manages some $44 billion in retail and institutional money -- and they use external funds for some of that money.
Fidelity spokesperson Jennifer Engle recently gave me a peek at outside funds that Fidelity employs in its Charitable Gift funds. (When you open a Charitable Gift account, you get an instant tax deduction, but you decide when to actually donate your money and which charities to receive your contributions.) Fidelity uses these same external funds for a variety of other Fidelity investment products, she says.
It's an interesting list. Most are funds I've written about here, and several are funds I own. But a few never would have occurred to me. Some load funds are in the mix, but, of course, an institutional investor like Fidelity never pays sales charges. Expense ratios aren't relevant in considering these funds either, because in many cases institutional share classes charge less.
Fidelity isn't saying too much about how it chooses these funds. Engle says Fidelity employs quantitative and qualitative measures to select funds. In other words, Fidelity analysts crunch the numbers and take a close and personal look at the people running the fund. To my mind, using both those tools is the only way to select funds. But I'd love to know more about how the selection process works.
I'm focusing this piece mainly on the funds Kiplinger's rarely, if ever, writes about. Most of them are load funds for ordinary investors.
Hotchkis and Wiley Core Value (HWCAX) exemplifies a quality that Fidelity's own funds do not -- a willingness to close a fund to new investors when the asset base is still relatively small. This is a large-cap value fund with an average stock-market value of $21 billion. Yet the two-year-old fund closed to new investors with less than $2 billion in assets -- $8 billion total if you count similarly managed private accounts. The managers look for financially strong companies that are temporarily out of favor.
Legg Mason Partners Large Cap Growth (SBLGX), another load fund, is an old Smith Barney fund taken over by Legg Mason. Manager Alan Blake, who has run the fund nine years, sticks to a handful of stocks. He buys stocks of solid companies, often with problems, and holds on patiently. Over the past five years through October 6, the fund has returned an annualized 5% -- not bad for a large-cap growth fund during a period that has generally been hostile to the kinds of stocks it buys.
Morgan Stanley Institutional Mid Cap Growth (MPEGX) comes only in an institutional flavor; it requires a $500,000 minimum investment. Lead manager Dennis Lynch focuses on companies with high returns on capital and high cash flow. It has beaten its category since Lynch took over in 2002. The five-year return is an annualized 11%.
Westport Select (WPSCX) is a fine mid-cap blend fund that's closed to new investors. The other domestic funds on Fidelity's list are Legg Mason Opportunity Trust (LMOPX), Bill Miller's "other" fund; Marsico Focus (MFOCX), a longtime favorite of mine; RS Value (RSVAX), a great, mainly mid-cap fund that's changing to a load fund; Christopher Davis and Kenneth Feinberg's Selected American Shares (SLASX); T. Rowe Price Growth Stock (PRGFX); and T. Rowe Price Value (TRVLX), a lesser-known T. Rowe fund with a relatively new manager. (Legg Mason Opportunity Trust, RS Value, Selected American Shares and T. Rowe Price Growth Stock are all members of the Kiplinger 25, our list of favorite no-load funds.)
Most of the foreign funds are just as familiar. They include Causeway International Value (CIVVX), which we don't mention much only because it's closed to new investors; Julius Baer International Equity II (JETAX), the new, not-quite-as-good version of Julius Baer International (BJBIX) and William Blair International Growth (WBIGX), another fine, closed fund.
SSgA International Stock Selection (SSAIX) is a terrific-looking no-load foreign fund that I'd never heard of before. It has returned an annualized 16% over the past five years. I'm going to take a close look at this fund. I like its cousin, SSgA Emerging Markets.
Morgan Stanley Institutional International Equity A (MSIQX) is a closed fund that invests almost exclusively in large, undervalued foreign companies. The absence of smaller companies has hurt relative performance of late, but the fund's long-term record is fine. It gained 14% annualized over the past five years.
Steven Goldberg is a freelance writer and former senior associate editor of Kiplinger's Personal Finance magazine.