Two funds to buy today. The growth fund’s top sectors are Industrials, 24.52% of assets; Consumer Cyclical, 22.73%; and Technology, 15.80%. For the value fund, the largest holdings are in: Consumer Cyclical, 23.95% of assets; Healthcare, 19.45%; and Financial Services, 18.84%. We also include two sells of previous picks today.
Buy: Fidelity Growth Strategies (FDEGX) and Fidelity Value Strategies (FSLSX)
From Fidelity Monitor & Insight
Over the past three years, Fidelity Growth Strategies (FDEGX) has delivered its shareholders an average annual return of 12.3%. As for Fidelity Value Strategies (FSLSX), “just” 7.4%.
We’re beginning to see a move away from some of the market’s more expensive sectors (such as biotech and tech) to those that are more reasonably priced (certain financials, health care services and economically sensitive cyclicals). These sectors are considerably more prevalent in value-oriented funds generally, and Value Strategies in particular.
Value Strategies manager, Tom Soviero, is unwilling to pay much of a premium for a dollar’s worth of earnings, or sales, etc., as his counterpart (Jean Park) has been willing to do at Growth Strategies. For example, whereas Jean has essentially been willing to pay $20.40 for stocks that have earned $1.00 a year, Tom’s been paying a comparatively modest $13.30. Of course, Jean’s willingness to pay up is based on her expectations that the pace of future earnings will accelerate—that’s less the case for “cheaper” value stocks.
Viewed another way, Growth Strategies one-year forecasted P/E is 17.0 versus a more modest 13.4 for Value Strategies. And, as for one-year forecasted earnings-per-share growth, Jean’s portfolio stands at 24.2 versus 13.7 for Tom’s value fund.
Of course, value funds’ holdings are typically less pricey than comparable growth funds. So while we don’t anticipate any significant changes to their investment strategies, we believe that as growth stocks continue to disappoint on sales and earnings (think Apple, Intel and Microsoft in large cap land), investors will gravitate to more attractively priced areas of the market. And, when they do, Tom’s table is already set for them, as with a portfolio turnover of just 9%, Tom’s been holding many of the same stocks for years. In fact, by this metric, about 10 years! Says the longtime manager: “I’m inclined to ride out short-term ups and downs. If I believe in something and it goes down, I’ll buy more.”
Although our outlook for value-oriented funds has improved relative to growth, prudent risk management demands that we maintain exposure to both areas. As for Growth Strategies, unless the market truly turns against Manager Jean Park, her talents as a stock picker are likely strong enough that she’ll continue to do well for her shareholders. That’s why we continue to rate her fund Buy, while also adding to Value Strategies.
Jack Bowers, John M. Boyd and John Bonnanzio, Fidelity Monitor & Insight, www.fidelitymonitor.com, 800-397- 3094, May 2016