Amid a harsh pullback by the broad market, what is one of the best Fidelity funds up to? Fidelity's Jason Weiner, who co-runs one of the best mutual funds industrywide — $3.2 billion Fidelity Growth Discovery (FDSVX) — is making shrewd moves on three fronts.
Just remember, the marquee-manager thinks long-term with his co-manager Asher Anolic. "We're strictly growth investors who want assets to appreciate over time," he said.
One savvy tactic is to stick by what he calls "the market's real highfliers, its supergrowers."
Many investors have bailed out of popular megacap tech names like Microsoft and Google-parent Alphabet, which have declined sharply. Not Weiner and Anolic. They'll add to existing stakes if those stocks and their ilk shed enough of their lofty prices in the current pullback, Weiner says.
Fidelity Funds: Leaving Well Enough Alone
Weiner and Anolic's second smart step? Letting non-megacap tech holdings that have buoyed Growth Discovery continue to run.
Drugmaker Vertex Pharmaceuticals and derivatives exchange CME Group have not only outperformed. They've notched gains so far in this volatile but young year.
Weiner and Anolic's third step? They're sticking by non-megacap tech holdings that they think will see better days once current volatility subsides. Two are Warner Music Group and Universal Music Group.
"The music business is awesome," Weiner said. "It went through a terrible period while it was transitioning from CD and record sales to music streaming. But that is over. Basically, now music is digitally distributed. Music labels own rights to music for decades. And they get to monetize that in a growing number of distribution channels."
Amazon Music, Apple Music, Spotify, TikTok and YouTube have become sources of income for music labels. "It's a great business," Weiner said.
Warner and Universal stocks are down 16% and 21% respectively this year, going into Wednesday, according to analysis by MarketSmith. But they have dividend yields of 1.7% and 2.1%, respectively.
These Fidelity Managers Break Their Own Rules
Weiner and Anolic also like computer security software firm Mandiant, which slipped into negative return territory on Wednesday before rallying on Thursday.
After years of struggle, Mandiant posted earnings per share growth of 71%, 140%, 162% and 157% the past four quarters. Last year the company announced it would sell its original FireEye core business. The remaining entity is the company you call when your cybersecurity has been breached or you fall victim to a ransomware attack, Weiner says.
"This company violates may of the investment rules that Asher and I try to follow," Weiner said. "Turnarounds in the tech space are tough. People often overestimate what they will accomplish. But we feel that over the next 12 to 24 months this company will emerge as a real business model, with a critical mass of human talent and software assets. It will be indispensable to large organizations in the West. It is not sold in Russia. It defends us from Russia."
Can CME Group Help This Fidelity Fund Excel?
How can CME Group help Growth Discovery remain one of the best mutual funds? CME is the world's largest financial derivatives exchange. Using its exchanges, investors trade futures, options, cash and over-the-counter (OTC) products.
During periods of market volatility — like now — derivatives trading volume tends to increase. That's because derivatives trading allows investors transfer risk to other investors.
"Every market they are in is a monopoly," Weiner said. "As the interest-rate environment gets more chaotic and as the Federal Reserve raises the short end of rates, CME is the place to go to hedge interest-rate risk."
Earnings per share fell 23%, then rose 1%, 16% and 19% the past four quarters. EPS is expected to rise 12% this year, according to analysis by MarketSmith.
Fidelity Funds: How Vertex Contributes
What is Vertex's role in one of the top Fidelity funds? Vertex markets three treatments for cystic fibrosis. The disease causes a human to produce thick mucous, which clogs organs like the lungs.
Sales in 2021 totaled $7.57 billion. The company's 2022 forecast is for $8.4 billion to $8.6 billion. The top end would be a 13.6% jump.
Earnings per share in 2022 are expected to jump 89%, per analysis by MarketSmith.
Also, the company is trying to develop drugs for ailments related to kidneys, pain and diabetes. Little if any of that potential is priced into Vertex shares now, Weiner says. "So you're not paying much for their future success," he said.
By The Numbers: One Of The Best Mutual Funds
Fidelity Growth Discovery Fund became an IBD Best Mutual Funds Award winner by topping the S&P 500 in 2020 and in the three, five and 10 years that ended that Dec. 31.
It fell short of repeating in the upcoming Awards compilation by lagging the benchmark in 2021, 23.00% vs. 28.71%.
So far this year, the fund is down 13.61% vs. -9.50% for the S&P 500 and -15.30% for its large-cap growth rivals tracked by Morningstar Direct.
Still, the fund is outperforming 90% of its peer group over the past five years and 87% of them over the past 10 years.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and actively run portfolios that consistently outperform and rank among the best mutual funds.
