The top five holdings of our first recommendation are: Williams Companies (WMB, 1.76% of assets); Eurofins Scientific SE (ERFSF.PA, 1.73%); Williams Partners LP (WPZ, 1.68%); Boston Scientific (BSX, 1.57%); and United Rentals (URI, 1.55%). Our second recommendation is a partial sell of an information technology stock.
Buy: Fidelity Mid-Cap Stock (FMCSX)
From Moneyletter
Starting within the universe of stocks with market capitalizations between $1 billion and $10 billion, manager John Roth of Fidelity Mid-Cap Stock (FMCSX), considers stocks for investment across the growth and value spectrums. Roth states, “I focus on situations where I have a more positive view versus consensus of a company’s future fundamentals. I believe these types of stocks should outperform the fund’s benchmark over time. As a result, the expected earnings growth of the fund’s holdings tends to be higher than that of the index average.”
He identifies three types of opportunities: “Growth stocks where we have a differentiated view on the magnitude or sustainability of the growth rate; cyclical stocks, based on differing expectations for the timing, duration, or magnitude of the cycle; and intrinsic value stocks, where we have a contrary assessment of the underlying asset value.”
Risk management is also important. Roth says, I emphasize “a large number of modestly sized active positions, rarely taking a single holding above two% of the fund’s assets.” (The fund generally holds between 150 and 200 individual positions.) He adds that the S&P MidCap 400 benchmark represents only about 20% of the fund’s investment universe, so many of the “most influential” fund holdings are non-index stocks.
Energy has been by far the fund’s largest sector overweighting compared to the benchmark—evidence of the manager’s somewhat contrarian bent. That positioning weighed on 2015 performance, but is now paying off. Three of the best performing holdings in the portfolio are Williams Partners (gas pipelines), Energy Transfer Equity (natural gas pipelines and processing), and Cimarex Energy (oil and gas exploration and production).
The fund has advanced 11.5% this year, putting it ahead of 97% of the Morningstar mid-cap growth category.
Walter Frank, Moneyletter, www.moneyletter.com, 800-890- 9670, September 2016