The top five holdings of this fund are: Microsoft Corp (MSFT, 11.29% of assets); Tesla Inc (TSLA, 8.41%), Danaher Corp (DHR, 6.09%); Honeywell International Inc (HON, 5.60%); and Cisco Systems Inc (CSCO, 5.29%).
Fidelity Envir and Alt Energy Fund (FSLEX)
From: Fidelity Monitor & Insight
Until recently a Select fund, Environment & Alternative Energy is now a part of Fidelity’s expanding suite of “socially conscious” funds. But a mere name change is not the full extent of its metamorphosis.
Launched in 1989, its name and investment mantra are now in their fourth iteration—this time as an ESG fund whose environmental overlay leaves the issues of social equality and corporate governance to others. While Alt Energy’s primary investment objective remains capital appreciation, 80% of its assets must be assigned to companies that are “principally engaged” in alternative and renewable energy production, energy efficiency, pollution control, water infrastructure and even waste management. As of Alt Energy’s Feb. 28, 2021 annual report, six of its top10 holdings were energy efficient companies.
Benchmarked against the FTSE Environment Opportunities & Alternative Index, the fund’s new co-managers rely on Fidelity’s proprietary ESG screens as a first cut in defining its investable universe. Under former manager Kevin Walenta, his stated preference was for value-oriented stocks, though he hewed somewhat to the demands of his benchmark’s holdings. (No surprise there as he remains on the team-run Mid Cap Value fund.) But his value bias contributed to the fund lagging its benchmark when U.S. equities recovered.
Enter Managers Asher Anolic The “New” Environment & Alternative Energy Fund Gets Growthier and Julia Pei. Having joined the fund in July and August, respectively, there are plenty of signs that they’re refashioning the fund’s composition under its modified charter and new benchmark.
While Tesla was also a top holding near the end of Walenta’s tenure, its underweight relative to its benchmark, coupled with the fund’s value orientation, contributed to its relative underperformance. (As of Feb. 28 of this year, its 39.0% return dramatically trailed its benchmark’s 60.0% return.)
With an investment style that has been large cap blend, the 20% “wiggle-room” the managers have for “miscellaneous environmental” stocks has allowed them to make Microsoft the fund’s top holding. It has also allowed them to stake out positions as divergent as microchip makers (Texas Instruments) and former potato chip makers (Procter & Gamble). While the fund’s rising large-cap growth-stock exposure has pushed it away from value, Alt Energy remains an economically sensitive industrial fund, albeit one not tied to Rust Belt manufacturers.
Upgraded this month to Buy from OK to Buy, Alt Energy has been added to our Select Model not for its ideals (the environment) but rather for its exposure to innovative, large-cap industrials that stand to benefit from the global economy’s hesitant, but continuing recovery.
Jack Bowers, John M. Boyd and John Bonnanzio, Fidelity Monitor & Insight, fidelitymonitor.com, 800-397-3094, October 2021