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TheStreet Open House

What Fidelity Does With Green Mountain Shares Could Be a Tell

NEW YORK ( TheStreet) -- To break a stock, the goal of a short like Greenlight Capital's David Einhorn isn't getting the retail investor to run scared, it's to get the big institutional holders of shares to capitulate. In the case of Green Mountain Coffee Roasters (GMCR), this means the most important "tell" will be what mutual fund giant Fidelity Investments does -- or has already done -- in response to the demise of Green Mountain Coffee shares.

Fidelity is the largest shareholder of Green Mountain Coffee Roasters as of its last quarterly portfolio report, through June 30. That report, filed with the Securities and Exchange Commission on Aug. 16, showed that the mutual fund giant had increased its stake in Green Mountain Coffee by 4.7 million shares during the second quarter, to 19.1 million shares.

The second-quarter buying by Fidelity was a 32% increase in its Green Mountain stake, and represents 12.5% of Green Mountain's outstanding shares, according to the Imetrix service from Edgar Online. Overall, Green Mountain shares are 75%-owned by institutional investors.

Green Mountain Coffee shares have been decimated since Einhorn went public with his short campaign and accusations of accounting fraud at Green Mountain. Shorts typically use accounting fraud as a scare tactic to scare the big investors out of a stock they are looking to break, whether or not the accusations turned out to be founded in reality or merely a good scare tactic. Wednesday's Green Mountain earnings disaster has only exacerbated the existing tension and lack of investor comfort with its management.

It's an interesting counterpoint to the very public and very vocal approach of the shorts like Einhorn that an institutional giant like Fidelity never says anything about the positions it holds, even when those positions are under attack. There's a simple explanation: While the shorts like to "talk their book" the longs among the big institutions don't consider that an appropriate strategy. There's a second reason why long-only investors are typically quiet: oftentimes they are major holders of shares because of an index fund or exchange-traded fund, which is basically run on auto-pilot.

Fidelity Investments can invoke the first reason for not speaking up, but as for the second, it's not a valid reason for Fidelity to remain quiet about Green Mountain. Fidelity has invested in Green Mountain Coffee among several of its most popular actively managed strategies -- i.e., funds for which human portfolio managers are making qualitative decisions to invest.

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