Rated four stars by Morningstar, this large-cap value fund has an average five-year return of 19.42%.
Fidelity Value Discovery (FVDFX)
from Moneyletter
Fidelity Value Discovery (FVDFX) invests in companies that are believed to be undervalued relative to various factors. Manager Sean Gavin recently undertook a study with two others, which indicated that adding a quality parameter to the valuation-based approach has the potential to improve long-term results, especially in terms of risk and reward.
“Our research suggests that the intersection of quality and value brings out all the positives of quality investing—meaning less downside and lower levels of volatility—and the enhanced returns of the value factor. So, in our study, you got higher returns than pure value investing, with much lower downside risk.”
He concludes, “There are parts of the market cycle when lower quality and growth stocks are going to outperform, but it has proven extremely difficult for investors to accurately predict those changes in market conditions. But if you look back over the long term, a quality and value approach has offered the best probability of outperformance of all the different strategies.”
Recently, the consumer staples, health care, and information technology sectors have ranked highly on quality metrics and all three sectors are overweighted in the portfolio relative to the Russell 2000 Value index. In terms of net assets, financials is the top sector in the portfolio (though underweight in the index), followed by health care and information technology (27.9%, 16.0%, and 15.4% of assets, respectively).
The fund outpaces 96% of its large blend peers for the year to date (through May 1), and has performed admirably over longer time frames as well.
Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670, May 2014