A Fidelity Fund Misses Out on Soaring Bank Stocks
The Fidelity International Growth Fund has outperformed over the long term, but its lagging exposure to bank stocks has weighed on more recent returns.
When other investors start to lose interest in certain stocks, Fidelity International Growth Fund (FIGFX) manager Jed Weiss says, "my ears perk up." He favors firms with good long-term growth prospects, attractive stock prices and solid moats around their businesses.
Over the past three, five and 10 years, he has outpaced his peers (foreign large-company growth funds) and the fund's benchmark, the MSCI EAFE Growth Index.
But in recent years, FIGFX – a member of the Kiplinger 25, our favorite no-load mutual funds – has not kept pace with the broader MSCI EAFE Index, which includes growth and value stocks.
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Over the past 12 months, the fund's 11.8% gain has lagged the EAFE index's 17.7% rise. The primary reason: Bank stocks make up 24% of the index, and they have performed well since interest rates around the world have climbed from near-zero levels.
The Fidelity International Growth owns some financial services stocks, but there's a "big gap" in exposure to the sector between the fund and the EAFE index, says Weiss.
Even so, the fund's bright spots include German software company SAP (which has returned 52% over the past 12 months), French aerospace and defense company Safran (up 55%), and U.K.-based aerospace firm BAE Systems (up 60%).
Meanwhile, Weiss says, he "gobbled up great franchises on the cheap" during the April stock selloff. On top of adding to stakes in existing positions, he initiated positions in Belgian bank KBC Groupe and German ticketing firm CTS Eventim, among others.
Weiss's contrarian tilt has resulted in an above-average stake in U.K. stocks in recent years. Investors have ignored that market since Brexit, he says, and "a lot of shares in great global franchises are trading at valuations that you haven't seen for years."
Some British stocks that are newish to the fund include the London Stock Exchange, RELX, which owns the LexisNexis legal database, and Howden Joinery Group, a supplier of kitchen and joinery products (doors, cabinets, furniture) to builders.
This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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