Fidelity Mega Cap: Investing in Giants
There's a strong case for investing in behemoths for shelter from an economic hailstorm. These companies tend to have stronger balance sheets and a higher proportion of overseas sales than their smaller brethren. And their stocks are more insulated from general market swoons. Fidelity Mega Cap, under its new mandate and manager, is a fine option for investing in the giants, but it may not be much more than that.
The fund (symbol FGRTX) will stay close to the mandate suggested by its name. As Fidelity Growth & Income II, the fund invested primarily in the shares of large, dividend-paying companies. The shift, effective since the beginning of December, restricts potential investments to the roughly 200 largest publicly traded companies, by market capitalization. Because Mega Cap holds 150 to 160 stocks, manager Rick Mace isn't left with much wiggle room.
But he's brought in an elaborate new investment process to try to eke out extra returns. Mace and the three analysts who support his fund attack stocks from four angles. A quantitative analyst runs stocks through proprietary computer models. A fundamental analyst looks at financial statements and companies' business prospects. Mace, who took the helm in mid-November, serves as the fund's technical analyst, gauging stock movements to try to determine where prices will go next. And an economist looks at broad trends to judge whether, say, pharmaceutical stocks are timelier than technology stocks.
In the end, Mace and the three others rank stocks on a scale of one to five, and Mace purchases stocks according to how well they've ranked on each scale. Stocks that rank highly in all four areas get the heaviest weightings. "When we get agreement among all four different ways, our stock picks are usually very successful," he says.
It's too soon to tell if all that numbers-crunching will be able to add returns. Between December 1, when the fund officially shifted gears to its new approach, through March 25, it has lost 8.8%, or one percentage point more than the Standard & Poor's 500-stock index.
Mace says the contrast between the worst and best performers among huge companies is dramatic. Among stocks of the 50 largest companies, he says, there has typically been an 80% difference in returns between the five-best and five-worst performers over time.
With top-ten holdings in such household names as Microsoft (MSFT), Chevron (CHV) and Altria (MO), it's hard to envision the fund ever lagging the market meaningfully. But it's equally tough to imagine the fund clobbering its benchmark, the Russell Top 200 index.
Take the $650 million fund for what it is -- a competent provider of exposure to huge companies at a fairly reasonable 0.76%-per-year price tag. The fund, which does not charge a commission, requires an initial minimum investment of $2,500.