The hottest hands at Fidelity these days may be those of the ambidextrous Tom Soviero, who's equally adept at investing stock and fixed-income money. Soviero's background is in high-yield bonds, and he's run broker-sold Fidelity Advisor High Income Advantage (symbol FAHYX) since June 2000.
In July 2003, he took over management of Fidelity Leveraged Company Stock (FLVCX), which invests principally in shares of companies shouldering relatively high debt ratios. Soviero has been on a tear. Through June 30, 2007, Leveraged Company gained an annualized 28% in his first four years, compared with 13% for Standard & Poor's 500-stock index during the same period. Then in June 2005, Soviero began managing Fidelity Convertible Securities (FCVSX), with like results. Over the past two years, Convertible Securities returned an annualized 20% through June 30, an average of eight percentage points per year better than the return of the Merrill Lynch All Convertible Securities index.
Sounding like a humble company man, Soviero gives full credit for generation of ideas to Fidelity's strong team of 25 high-yield analysts, who rate both bonds and stocks. "I view myself as the analyst who can pull the trigger on stocks," he says.
In truth, Soviero has put a strong imprint on both funds. He's a patient investor -- turnover in Leveraged Company and Convertible Securities plummeted after he took over. "Most money we make is in the second or third year of investment," he says. And he runs both funds with relatively concentrated portfolios: "I play to win: I put most money on the best ideas." The portfolios of the two funds look increasingly similar, too. Soviero estimates that close to half of each fund's holdings appears in the other.
The key to Leveraged Company's sizzling performance is outstanding sector bets. Soviero loaded up on energy shares (usually a quarter to a third of his portfolio) after taking over in 2003. Oil was too cheap, he reasoned, correctly. He also bought shares in oil-tanker companies, accurately foreseeing that rising demand from China and elsewhere would cause tanker day rates to surge. Recently he's been adding to technology holdings. He figures that rising energy and materials costs will force U.S. companies to boost productivity-enhancing investment in technology.
So what's the main risk for Leveraged Stock? Soviero says that recession, particularly a global recession that deflates prices of energy and raw materials, is a risk. Inflation doesn't worry him so much. "A little inflation is not bad for leveraged companies," he notes, since this makes it easier for those companies to repay fixed-rate debt loads.
At some point asset bloat could become an issue. Not surprisingly, Leveraged Stock's assets have jumped eightfold, to $8 billion, since Soviero took the helm. So far, he says, asset growth hasn't been a problem. This year is his best -- Leveraged Stock is up an outsized 25% through July 18, and the lower-risk Convertible Securities has gained 20%.
"I always have more ideas than money, it seems," he says. "We're seeing the ball pretty well right now."