The top five holdings of this fund are Adidas AG (ADDDF.DE, 5.39% of assets); Adobe Systems Inc (ADBE, 5.34%); CBOE Global Markets Inc (CBOE, 5.08%); Caterpillar Inc (CAT, 4.90%) and Amgen Inc (AMGN, 4.88%).
Fidelity Focused Stock Fund (FTQGX)
From Moneyletter
Fidelity Focused Stock (FTQGX) has been a very strong performer. Stephen DuFour has managed Fidelity Focused Stock since March of 2007. And while the fund has had its ups and downs (as all funds do), its ten-year trailing annual average total return of 8.74% (as of November 3) outpaces nearly three-quarters of Morningstar’s large growth fund category, and also beats the S&P 500 benchmark.
More recently, a 9.08% return for the trailing three months through November 3 bests 94% of its category. And its 6.5% return for one month through October 27 outpaced all the domestic stock funds in the Moneyletter list.
Fidelity Focused Stock can hold up to 80 stocks, but DuFour targets 40 to 60 holdings, and most often about half the maximum (39 issues in the portfolio as of September 30). In mid-October he told The New York Times, “With 40, you have enough names to diversify, but you also get bang for your buck.”
Stock selection is driven by research and bottom-up fundamental analysis. DuFour looks for firms that will grow earnings marginally faster than the market and that sell at attractive valuations, i.e. growth at a reasonable price (GARP). He notes that the fund adapts to changing market conditions. Earlier this year he wrote, “When the market’s average earnings were flat, companies had to have earnings growth of 4% to 5% to make it into the portfolio. After the [November 2016] election, I upped the hurdle rate to 15%.” He also notes that “every stock is a positive active position in the portfolio, and it is very unlikely for us to take an underweighted stance in any name relative -to the benchmark. Because of this, the majority of our relative performance comes from stock selection.” Given the “focused” portfolio, it’s not surprising that the top ten holdings account for 47% of assets.
DuFour does not target sector weightings. As DuFour told the Times. “I’m sector agnostic. My overweights change based on where I find good investments, and I see great stuff in tech now.” Technology is the largest sector in the portfolio as of September 30, at 40.1% of assets. That is a significant overweight compared to the S&P 500. DuFour says, “I’m especially interested in opportunities tied to disruptive technologies, innovations that can change the way we do business. Disruptive technologies are creating winners and losers across sectors. I’m looking for firms adopting new technologies that can help position their businesses for future success.” Thus, technology investments are not solely bets on computers and the web. For example, PayPal (4.5% of assets) is known for its online payment system, but also offers loans and credit cards.
In fact, the growth in electronic payments is one of three themes in the fund. The others are the internet (especially artificial intelligence or AI) and the rising popularity of ETFs. He notes that most ETFs are based on indexes, and as such, must pay for the right to track the index. Hence, one of the fund’s top names is S&P Global (i.e., Standard & Poor’s), at 4.6% of assets. Meanwhile, the fund’s health care exposure has increased from just over 8% in October 2016 to 15.2% as of September 2017 as DuFour took advantage of attractive opportunities combined with worries that the -Affordable Care Act would be repealed. Fund health care holdings such as Amgen, Boston Scientific, UnitedHealth Group, and Humana have all contributed nicely to results.
In addition, many the fund’s top ten holdings have exceeded 50% returns this year, including Adobe Systems, CBOE Global Markets, Caterpillar, and PayPal Holdings. Looking forward, DuFour notes that he will keep looking for GARP stocks, but expects to incorporate AI into his search for investment ideas. He says that analyzing data can help point to an emerging theme. “With more and more raw data available, the key will be identifying those sets that are useful—and eliminating those that are sending the wrong signal. As the technology develops, I believe AI can help augment the front end of our investment process.”
Walter Frank, Moneyletter, www.moneyletter.com, 800-890-9670, November 2017