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Fidelity shifts style and wins
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May 11, 1999: 5:11 p.m. ET
Many Fidelity managers are buying up the biggest names in the S&P 500
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NEW YORK (CNNfn) - Many of the top funds at Fidelity Investments have soared in the last year by shifting their focus to large-cap growth stocks like Microsoft and America Online.
Fidelity's "style drift" towards the hottest stocks in the S&P 500 shows the Boston-based fund giant is chasing the same trend as the rest of the investing world, industry experts say.
"Their performance has been gangbusters," said Russ Kinnel, editor of mutual funds at Morningstar, a Chicago fund-researcher. "They've won with this strategy. It's really paid off."
If you exclude funds with a specific investing mandate like index funds and small-cap funds, there are 23 Fidelity names that could own Microsoft (MSFT) -- and all 23 do, Kinnel said.
"That's pretty powerful," he said.
For the previous 12 months through the end of April, 24 out of 46 Fidelity funds were in the top quartile for performance at Morningstar, meaning they beat most of their peers.
Other favorite names in the top 10 holdings at Fidelity's equity funds are America Online (AOL), General Electric (GE) and Cisco Systems (CSCO), according to company data through April 30.
The Fidelity shift came up at Morningstar's mutual funds conference in Chicago May 3-5, when about 1,000 managers and investing professionals gathered to talk about trends in the industry.
"When I think of Fidelity, one of its key aspects is flexibility," said John Rekenthaler, director of research at Morningstar. "Fidelity managers are paid to invest flexibly and I think they're doing it well."
Jessica Johnson, a spokeswoman for Fidelity, said managers take a "bottoms-up" approach to stock picking and that it is hard to generalize about the entire company.
"Each manager has their own opinions," she said. "Each manager builds his portfolio stock by stock."
But Rekenthaler said Fidelity chief executive Robert Pozen has made it clear managers will have some explaining to do if they do not have big growth names like General Electric (GE), Coca Cola (KO) and Microsoft and the stocks keep going up.
"The reality is they're taking a big gamble with their careers if they don't own them (big growth names) and they do go up," Rekenthaler said. "It's not an order to buy, but it's a reminder of the consequences if they refuse to buy and the stocks keep going up."
Kinnel also said that Fidelity has focused more attention on the performance of its funds compared to the S&P 500 benchmark. Many funds charge a fee that's woven into the expense ratio if they outperform the index over a certain time period, he said.
Both Magellan and Contra funds bought up a lot of growth names like Cisco and AOL during the market sell off late last year, Kinnel said.
Fidelity has also been focusing on funds that are beating the S&P 500 in recent advertisements, said Donald Dion, editor of the newsletter fidelityadviser.com.
"They all own GE, they all own Microsoft, and you're starting to see AOL show up," Dion said. "You're seeing a lot of common names."
Even mid-cap funds like New Millennium own big names like CMGI (CMGI) and Yahoo! (YHOO), Dion said.
Not everybody agrees the shift is a good idea. Scott Black, manager of Kobren Delphi Value Fund, said Fidelity has started mirroring what small investors have been doing by focusing on the biggest growth names in the market.
"This is all momentum playing, which is not the smart way to play the market," Black said. 
-- by staff writer Martine Costello
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