"How was it possible to beat the S&P 500 Index in 1998?" asks Fidelity ads currently running in major newspapers and business publications. "Just ask some of the Fidelity fund managers who did," the ad recommends, listing managers from six top-performing funds.
But the market-beating strategies offered in the ad were less than illuminating.
Here's how Bob Stansky, skipper of $83.5 billion
(FMAGX Quote - Cramer on FMAGX - Stock Picks)Magellan fund, explains his 1998 return of 29.6% in the ad: "I seek out reasonably valued companies that I believe can grow earnings faster than the overall market. ... The fund invests in small, medium and large companies."
Well, that narrows it down.
Not satisfied with these answers, we decided to take Fidelity up on its offer and ask the managers ourselves.
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| Source: Fidelity, Lipper. *29.6% when adjusted for a 3% load. |
But a Fidelity spokeswoman said this is a really bad time to talk to the managers because it's earnings season. And during earnings season, Fidelity managers talk "nonstop" to the companies whose stocks they hold.
So we decided to try to answer the question ourselves by digging into each of the funds' holdings.
Here's what we found: When these six managers talk to companies about earnings, they'll be dialing many of the same numbers.
That's because these six funds, all of which had returns between 33.5% and 36.5% to beat the S&P 500's return of 28.7% during 1998, held a lot of the same large-cap companies. Two stocks were in all of their top 10:
Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks) and
General Electric (GE Quote - Cramer on GE - Stock Picks), according to Fidelity's year-end report for holdings as of Dec. 31.
We aren't the first to notice similarities among Fidelity's large-cap portfolios.
TSC contributing editors Steven Syre and Steve Bailey pointed them out in a recent
column . (They didn't have any more luck than we did in getting Fidelity to talk about it.)
The funds had many other companies in common among their top-10 holdings as well. Four of the portfolios include
Philip Morris (MO Quote - Cramer on MO - Stock Picks), and the same number hold
MCI WorldCom (WCOM Quote - Cramer on WCOM - Stock Picks). Half hold
Cisco (CSCO Quote - Cramer on CSCO - Stock Picks) and
Intel (INTC Quote - Cramer on INTC - Stock Picks).
Two funds, Magellan and the $22.9 billion
(FLCSX Quote - Cramer on FLCSX - Stock Picks)Large Cap Stock fund, look particularly similar. They have six of their top-10 stocks in common: Microsoft, General Electric, Cisco, MCI WorldCom, Intel and
Merck (MRK Quote - Cramer on MRK - Stock Picks).
What's a fund buyer to do? Well, when choosing among funds posting returns within such a close range and having so many stocks in common, you may as well pick the ones that are the cheapest to own.
So we looked at the funds' expense ratios. At least in this category, Fidelity's funds differentiate themselves.
The ratios range from a high of 0.89% for Karen Firestone's Large Cap Stock fund and Charles Mangum's $10.3 billion
(FDGFX Quote - Cramer on FDGFX - Stock Picks)Dividend Growth fund to a low of 0.58% for Beth Terrana's $10.5 billion
(FFIDX Quote - Cramer on FFIDX - Stock Picks)Fidelity fund. (The average expense ratio for all equity funds is 1.5%, according to
Lipper.)
Magellan is the only fund among the six with a load (3%), though it is currently closed to most new investors.
Joe Bousquin
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