July 9, 2002 — Like his predecessor, the new manager of the Fidelity Fifty Fund (FFTYX), Fergus Shiel, is not afraid to make big bets on a handful of sectors, mutual fund observers say.
Lately, though, he’s been concentrating on totally different industries than had John Muresianu, who stepped down as the fund’s pilot last month, Fidelity watchers say. Muresianu had run the fund since January 1999.
Fidelity said Shiel, who continues to oversee Fidelity Independence (FDFFX), has a “flexible” investment style, and observers agree that although he has favored growth stocks in the past, he is also willing to invest in undervalued fare.
“In essence, they’re the same,” says David Pittelli, an analyst with Jim Lowell’s Fidelity Investor newsletter, commenting on Shiel’s and Muresianu’s approaches to stock picking. “Except they just happen to have different ideas about what sectors to be in right now.”
John Bonnanzio, group editor of Fidelity Insight, another newsletter that tracks Fidelity funds, says the Independence and Fifty funds have both been investing defensively of late, but they have not been seeking safety in the same places.
For example, the Fifty Fund, which holds about 50 stocks, had nearly 26% of its assets in energy stocks at the end of May, and mining companies then accounted for three of its top ten holdings, including its No. 1 stock, Newmont Mining (NEM).
By contrast, consumer stocks made up nearly 56% of the Independence Fund’s portfolio, and energy stocks only 7% on May 31. Tobacco companies held the first, second and seventh positions in the fund at the end of the first quarter.
Bonnanzio echoes Pittelli’s assessment of Shiel and Muresianu. “Style-wise, there probably isn’t a huge amount of difference” between them, which is why Shiel was shifted into the Fifty Fund, says Bonnanzio, adding, “it’s an appropriate fit.”
Of Shiel, Bonnanzio said: “I don’t know him necessarily to be a value or a growth guy. I tend to think of him as someone who’s going to go wherever the opportunities appear to be.”
Although he has taken a value-oriented stance recently, observers note that Shiel had favored faster growing technology companies in the Independence Fund in the late 1990s and through 2001.
Information technology stocks made up 26.3% of the fund’s holdings as late as the end of November, according to its 2001 annual report. Shiel told shareholders at that time that “I held on to many technology stocks because I believed the sector still offered the best potential for long-term growth, and I expect it to remain a significant component of the fund.”
By the end of May, however, information technology made up only 4.2% of the fund’s holdings, according to Fidelity.
Jack Bowers, publisher of Fidelity Monitor, another newsletter, believes that because Shiel got “badly burned” when technology stocks began melting down two years ago, the fund manager has “basically gone into a defensive position to kind of wait until things get better, I presume.”
The Independence Fund, which Shiel has run since 1996, returned 5.1% in the first quarter this year, while the Standard & Poor’s 500 Index was up 0.3% and the fund’s peer large-cap growth funds were down 2.3% on average. Shiel, in a report to shareholders, attributed the fund’s performance primarily to its “healthy weighting” in tobacco and other consumer staples stocks. He was favoring the latter group, he said, because of its “safe-haven status” in a “flight-to-safety environment.”
Conversely, the fund’s information technology stocks detracted from its performance in the first three months of the year as they continued to suffer from a falloff in corporate spending on technology, Shiel said.
Through June, Fidelity Independence was off 9.6%, while the average large-cap growth fund was down 17.8% and the S&P 500 lost 13.3%.
The fund lost 27.2% in 2001 after returning only 1.7% the year before. But it returned 47% in 1999 and 35.9% the year before.
Fidelity declined to have Shiel interviewed. Asked to describe the manager’s investment philosophy, a company spokeswoman said he invests in growth and value stocks of companies of all sizes. Shiel looks for companies exhibiting “improving fundamentals, strong cash flow, growing revenue, sustainable earnings growth rates and moderate” stock valuations, the spokeswoman, Sophie Launay, said.
In the brief time Shiel has been running the Fifty Fund, it appears he has been adding tobacco and other consumer staples stocks to the portfolio, says Bonnanzio. Pittelli also expects Shiel to focus on those stocks in his funds in the short term.
Given Shiel’s tendency to move heavily into certain kinds of industries, “he’s either going to fly high, or dive low,” says Bowers.