Weight Problems: Fidelity Skippers Differ on How Much Tech to Own

Despite all their vaunted research and inside dope, the folks at Fidelity just can't decide whether ravaged tech stocks will pop up or just keep falling.

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That's the news from the massive Boston fund shop's latest Mutual Fund Guide, released Tuesday, which lists each fund's sector weightings through the end of last month. A close look at the numbers uncovers an unusually stark divergence of opinion at the nation's largest fund shop, known for its expertise at spreading some of its $570 billion retail fund assets across the mercurial sector. Some managers have more than halved their exposure to the sagging sector, while others are buying.

"In a decade of tracking [Fidelity funds] I've never seen such a divided house," says Jim Lowell, editor of the independent newsletter Fidelityinvestor.com. "They all share the same research, but their translation is like night and day. If investors are scratching their heads about tech, here are the best-informed and some of the most talented fund managers in the world, and they can't make up their mind."

Fund and market watchers alike closely scrutinize Fidelity fund managers' moves due to the firm's girth -- with all that cash, their favorite picks tend to go up and their castaways can fare poorly. While the difference of opinion may prompt some head-scratching, one interesting theme emerges that may tell the tale about where Fidelity sees tech heading. Aggressive growth managers -- who typically hold stocks they think will rise now -- have been lightening their tech load in general. Less racy skippers -- who focus on paying low prices, rather than an immediate payoff -- are buying into tech. These moves collectively might indicate that Fidelity is seeing a dry season for tech this year, but a decent entry point for long-term investors.

Nasdaq's Big Moves Calling the Nasdaq "tech heavy" is apt when describing 2000 and 2001, since the sector has collapsed.
	YTD	2000	1999
Nasdaq Composite	-22.8%	-39.3%	85.6%
S&P 500	-10.6	-9.1	21
Source: Baseline/Thomson Financial.

Granted, the firm's funds don't usually move in lockstep and, when taken in the aggregate, the firm's shifting tech bets seem downright humdrum. If we compare the tech stake of the average U.S. diversified Fidelity stock fund at the end of last month and a year earlier, we find that it's gone from a modest overweighting to a modest underweighting, compared with the S&P 500. When a fund manager believes that a sector is due to beat the market, he or she usually give it a higher weighting than their benchmark, and vice versa.

But these averages mask vast differences of opinion. No two funds illustrate this better than the $33.8 billion (FCNTX)Contrafund, run by Will Danoff, and its allegedly similar sibling, the $1.2 billion (FCONX)Contrafund II, run by Adam Hetnarski.

Both funds shop for stocks that appear to be undervalued, but Danoff and Hetnarski clearly are taking different paths. At the end of last month the Contrafund had just 2.5% of its money in tech stocks, compared with 21.6% for its sibling. Over the last year, Hetnarski's tech taste hasn't hurt his fund too badly. It's down 8.6%, compared with a 12% loss for the Contrafund. Both funds are beating their average large-cap growth peer, according to Morningstar.

Split Decision Contrafund and its supposed sibling illustrate the internal tech debate at Fidelity.
Fido fund	Tech Weighting as of March 31, 2001	Tech Weighting as of Dec. 31, 2000	Tech Weighting as of March 31, 2000
(FCNTX)Contrafund	2.5%	10.2%	24%
(FCONX)Contrafund II	21.6	39.2	31.2
S&P 500	17.4	21.1	33.1
Source: Fidelity and Fidelityinvestor.com

Several other funds are also taking different tacks in tech land. Lowell says most of the firm's more aggressive managers are fleeing, while more price-conscious types are trolling the tech waters for bargains.

The list of folks charging out of tech includes Bob Stansky, manager of the $80.2 billion (FMAGX)Fidelity Magellan fund, the nation's second-largest fund, which is also closed to new investors.

Over the past 12 months Stansky, through falling prices as well as selling, has let his fund's tech weighting dwindle from 32.6% to just 11.6%. That's a significant underweighting relative to the fund's benchmark -- the S&P 500 -- where tech stocks account for more than 17% of the index. Over the same period, he's nearly doubled the fund's financial-stock stake from 11.9% to 20.4%.

"I've never seen Stansky bail like this," Lowell says. "I've never seen Stansky or Danoff so bearish on tech."

Man(agers) on the Run These funds have been dumping tech stocks fast and furious.
Fido fund	Tech Weighting as of March 31, 2001	Tech Weighting as of Dec. 31, 2000	Tech Weighting as of March 31, 2000
(FFTYX)Fifty	0.1%	0.1%	27%
(FMCSX)Mid-Cap Stock	2.5	6.2	45.3
(FCNTX)Contrafund	2.5	10.2	24
(FMAGX)Magellan	11.6	18.9	32.6
(FDEGX)Aggressive Growth	32.8	50	66
S&P 500	17.4	21.1	33.1
Source: Fidelity and Fidelityinvestor.com

John Muresianu, manager of the $413 million (FFTYX)Fidelity Fifty fund, and David Felman, manager of the top-selling $6.7 billion (FMCSX)Fidelity Mid-Cap Stock fund, have been drastically slashing their tech holdings. Over the past 12 months the two funds are down to nearly zero tech stakes after having 27% and 45%, respectively, of their money in tech stocks a year earlier.

The moves have worked out well. The Fifty fund, ostensibly the firm's top 50 ideas, is only down 2.1%, beating more than 90% of its large-cap blend peers, according to Morningstar. The Mid-Cap Stock fund is up more than 20%, also trouncing its competitors.

Bob Bertelson, who has floundered with the (FDEGX)Fidelity Aggressive Growth fund since taking the reins in February 2000, is still carrying a hefty 32.8% tech bet, but that's about half of what it was a year ago. The fund is down 38.8% over the past 12 months, lagging most of its peers.

While these funds have been hacking away at their tech holdings, others have gone in the opposite direction. While tech stocks have plummeted this year due to sagging earnings, Harry Lange, manager of the (FDCAX)Fidelity Capital Appreciation fund, and Nick Thakore, manager of the Fidelity fund, have raised their tech weightings. Lange stands out as his tech stake is up to 47.3% from 27% at the end of February.

Sticking With Tech These funds haven't been as quick to flee the tech sector.
Fido fund	Tech Weighting as of March 31, 2001	Tech Weighting as of Dec. 31, 2000	Tech Weighting as of March 31, 2000
(FDCAX)Capital Appreciation	47.3%	25.2%	32.5%
(FFIDX)Fidelity	25.2	20.8	35.6
(FCONX)Contrafund II	21.6	39.2	31.2
(FDGFX)Dividend Growth	16.5	19.4	22.6
S&P 500	17.4	21.1	33.1
Source: Fidelity and Fidelityinvestor.com

Charles Mangum hasn't let the (FDGFX)Fidelity Dividend Growth fund's tech stake fall below 16.5%, compared with 17.4% for its benchmark index, the S&P 500. A near market weighting for him is actually a significant shift, since he's been light on tech vs. the index for some three years.

Beyond the tech question, there is a less sunny point to note regarding Fidelity's holdings. Several managers, including Felman and Danoff, have significantly raised their cash stake over the last year. Lowell says Fidelity hasn't seen a sharp rise in fund redemptions, so the fat cash stakes have a grim implication for stock investors: Cash is king.

Let's Sit This One Out These funds don't seem too jazzed about owning stocks right now.
Fido fund	Cash Stake as of March 31, 2001	Cash Stake as of March 31, 2000
(FMCSX)Mid-Cap Stock	18.7%	4.7%
(FLPSX)Low-Priced Stock	15.3	2
(FGRTX)Growth & Income II	14.1	4.1
(FCNTX)Contrafund	11	5.5
Source: Fidelity and Fidelityinvestor.com

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