When Heads Roll, Strategies Often Follow

No two piano players play "Take Five" the same way. Similarly, shareholders of the (FMCSX Quote)Fidelity Mid Cap Stock fund are finding out that two fund managers can take the same strategy in different directions.

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Last month, the Boston fund behemoth announced that David Felman, manager of the solid and hot-selling fund, was leaving to take a job at hedge fund shop Andor Capital Management. Portfolio data released this week indicate that new manager Beso Sikharulidze ratcheted the previously tech-light portfolio's tech stake up from 4.5% to more than 22% in just two weeks. So the fund is now more tech-weighted than its benchmark, the S&P MidCap Index, after being significantly underweight just days earlier.

Identity Crisis?

"Fidelity Mid Cap Stock has a totally new identity thanks to its new manager," says Jim Lowell, editor of the independent FidelityInvestor newsletter. "Dave Felman was arguably Fidelity's most visible tech bear. Basically he just wanted nothing to do with technology. Now Fidelity's most tech-bearish growth fund has become one of its most tech-bullish growth funds. I don't know if I'd sell on this news, but people need to be aware that their fund has changed drastically."

The upshot: With fund returns and fund company profits sagging, managers are shuffling and these changes merit your attention, lest the fund you thought you bought quietly morph into something else overnight.

Stepping Up to the Tech Buffet The Mid-Cap Stock fund's tech stake jumped to 22.4% from 4.5% in a month
June 30		May 31
Technology	22.4%	Financials	21.6%
Financials	16.1	Cash	13.8
Health Care	16	Health Care	13.5
Source: Fidelity.

There are plenty of people in that boat with the Mid Cap Stock fund, because Felman's 2000 performance drew investors' cash. He took over in August 1999 and proceeded to lighten up on the tech sector as it folded. That helped him ring up a 32% gain in 2000, trouncing its average tech-sick peer by more than 40 percentage points, according to Chicago fund-tracker Morningstar.

The fund started 1999 with $2.3 billion in its coffers and now has more than $7.1 billion, thanks to sales and investment performance. That makes it the third-largest mid-cap growth fund.

"It's such a big move into technology that he's betting the ranch that he's right; that tech will come back strong in the second half of this year," Lowell says. "If he's wrong..."

Rotating

Sweeping portfolio shifts like this one show why it's important to closely monitor your fund's sector weightings, which isn't always easy because many fund companies are stingy with the information. Though it may seem like it, Sikharulidze's move doesn't actually represent a change in strategy. The fund is rotating among sectors as it did in the past, but its favorites have simply changed with its manager.

"With the Mid Cap Stock fund, Felman ran it like a hedge fund in terms of sector bets," says Scott Cooley, a senior fund analyst at Morningstar. "That's continued now, but there's no way to know how it will work out."

And when a fund manager is wrong, the consequences can be steep. The (FDEGX Quote)Fidelity Aggressive Growth fund offers a vivid and recent example of a new manager stumbling out of the gate.

On Valentine's Day last year, the fund's manager, rising star Erin Sullivan, bolted to open her own hedge fund shop. She'd run up solid gains since taking the reins in 1997 and the fund's assets had grown from less than $2 billion to $17.2 billion. To be fair, new manager Robert Bertelson inherited a portfolio with more than 60% of its money in tech stocks less than 30 days before the Nasdaq Composite peaked. That said, he held on to those tech stocks and recently stuffed more than a quarter of the fund's money in energy stocks just in time for that sector to cool.

Over the past year, the fund is down more than 61%, trailing a whopping 97% of its large-cap growth peers, according to Morningstar. A $10,000 investment in the fund at the end February last year would've been worth $4,219.86 at the end of last month.

Aggressive, Yes. But Growth? In a short time Bertelson has left his mark on the Aggressive Growth fund
	Fidelity Aggressive Growth	Percentile Rank in Category (1=Best, 100=Worst)
YTD Return	-40.9%	98%
1-Year Return	-61.1	97
3-Year Return	-2.4	73
Source: Morningstar. Returns through July 17.

Bertelson "kept the tech stake pretty big last year. The fund definitely paid a price for that," says Morningstar's Cooley. "This year the biggest problem was a huge energy bet. It was up around 30% of assets at one time and I believe energy is about 7% of the S&P 500."

The bottom line for investors is that manager turnover at a big shop like Fidelity is always high, but given that many of 1999's hero funds have become goats, more changes are probably coming across the fund industry. In just the past 30 days, Vanguard and RS Funds have dismissed managers. Growth specialist Janus was recently removed from a small-cap fund by American Skandia.

So when you get a letter in the mail saying that So-and-So, Harvard grad and all-around fantastic person, is the new manager of your fund, but its strategy won't change, just make sure you keep an eye on said So-and-So.

As you can see, you can hand two managers the same sheet music, but they might play a very different tune.