Fidelity Managers Shift to Financials and Cash, Lightening on Tech

The most recent portfolio information from Fidelity shows that many of the Boston fund behemoth's fund managers have cooled on tech stocks, preferring financial stocks and the cozy safety of cash.

The firm's September guide to its direct-sold funds lists each stock portfolio's asset allocation at the end of July. Though the data is far from real-time, it's eye-catching because it indicates that many managers at the nation's largest mutual-fund company lost some of their confidence in tech stocks, either moving money to the surging financial-services sector or simply letting cash pile up.

Among Fidelity's diversified stock funds, the number that reduced their tech-stock weighting outnumbered those raising their tech position by more than four to one. Among the firm's 10-largest diversified funds, all but two had an underweighting compared with their respective benchmarks to the sector at the end of July. (FMAGX)Fidelity Magellan, the nation's second-largest mutual fund with $109.8 billion in assets, was among those reducing their tech stake. The fund's tech weighing dropped from 35.1% to 31.3% in July.

Lightening the Tech Load Among five Fidelity funds with the biggest tech-stake drop in July you'll find $109.8 billion Magellan.
Fidelity Fund	July 31 Tech Stake	June 30 Tech Stake
(FDSCX)Small Cap Selector	19.8%	33.8%
(FDFFX)Retirement Growth	50.4	58
(FMCSX)Mid-Cap Stock	21.3	31.3
(FMAGX)Magellan	31.3	35.1
(FDCAX)Capital Appreciation	30.5	36.9
Source: Fidelity

Fidelity managers don't discuss stocks and portfolio moves, but one Fidelity-watcher says the firm's managers are probably timing their tech investments, trying to post profits by trading in and out of the mercurial sector.

"I think they're really trying to time their investments in the tech sector," says by Jim Lowell, editor of the independent newsletter, Fidelityinvestor.com. "That's what an active manager does when their stocks are trapped in a trading range. On both a seasonal and cyclical basis you're seeing fourth and first quarters that tend to be the best for tech stocks."

In July the tech-heavy Nasdaq Composite dropped 5%, compared with a 1.6% loss for the broader S&P 500, according to Baseline. In August the Nasdaq jumped up nearly 12%, but it has fallen on hard times so far this month, losing more than 7% through Monday's close.

Many Fidelity managers missed some of July's losses either by not buying more tech shares as their picks dipped or by actively selling stock. Many funds -- either through performance, active buying, or a combination of both -- let their financial-stock weighting rise.

David Felman, who runs (FMCSX)Fidelity Mid-Cap Stock fund, dropped his fund's tech position from 31.3% to 21.3% in July. At the same time the fund's financial weighting rose from 6.4% to 8.7%. Like many Fidelity managers, however, he also boosted his fund's cash position, essentially sitting on the sidelines. The average stock fund's cash stake is typically around 5%, but in July Mid-Cap Stock's went from 9.2% to 12.6%.

Fidelity Fifty, where manager John Muresianu has dropped the fund's tech stake from 28% on March 31 to practically nothing, had a 3.1% cash position at the start of July but it hit 9.5% by July 31. Even (FCNTX)Fidelity Contrafund, one of the nation's largest funds with some $45 billion in assets, let cash mount up to nearly 10% at the end of July.

A Mountain of Cash Many Fidelity funds let cash mount in July, including the $45 billion Contrafund. The average stock fund has a cash position around 5%.
Fidelity Fund	July 31 Cash Position	June 30 Cash Position
(FCNTX)Contrafund	9.5%	6.6%
(FFTYX)Fifty	9.5	3.1
(FGRTX)Growth & Income II	10.4	9.6
(FNCSX)Mid-Cap Stock	12.6	9.2
(FDSCX)Small Cap Selector	12.6	8
(FSLCX)Small Cap Stock	10.9	5.6
Source: Fidelity.

"This mounting cash means some aren't just cool to tech, but to the whole market and that hasn't been the norm for Fidelity managers," says Lowell.

Of course, some Fidelity managers chose a different path. Paul Antico, manager of (FSLCX)Fidelity Small Cap stock, raised the fund's tech position from 13.9% to 17% in July -- a significant rise, though still an underweighting. And (FLCSX)Fidelity Large-Cap Stock, which started July with a tech overweigthing relative to the S&P 500, raised its stake from 35.9% to 37.9%.

Lowell thinks some conservative funds such as (FGRTX)Fidelity Growth & Income II might have higher cash positions to meet steep redemptions. By his math Fidelity's growth and income funds, which typically have lower-octane strategies than tech-heavy growth funds, have lost some $14 billion, or around 20% of their assets as a group so far this year.

Predictably, the firm's growth and sector-specific Select funds that put more focus on last year's sizzling tech and telecommunications stocks haven't had trouble attracting fresh money from investors, according to Lowell. How much those funds keep in tech stocks will be interesting to watch.

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