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S&P Capital IQ


08/24/17 05:00:33 PM


Unlike a passive ETF that tends to have more quarter-to-quarter consistency in its holdings and allocations, change at active mutual funds is to be expected. Indeed, one of the possible benefits of active management is that a portfolio manager or team can increase or decrease exposure to a stock for fundamental and/or valuation purposes As such, CFRA thinks looking at the stakes held by - and traded by -- a large asset manager such as Fidelity Investments can be insightful.

While Fidelity is increasingly participating in the passive world, with new smart beta ETFs such as Fidelity Momentum Factor (FDMO 28 Overweight) launching in September 2016, the firm remains better known for its active mutual funds products.

According to the Capital IQ database and using the June 30, 2017 13-F filing, information technology remained the largest overall sector exposure for the mutual fund giant, at 27% of assets. Yet, management across various portfolios sold shares in some tech heavyweights. During the second quarter, the share count in Apple (AAPL 160 ****) fell 3.9%. Fidelity's exposure is now at its lowest quarter end level since June 2016; CFRA downgraded AAPL to buy, from strong buy in early August but continues to see potential for multiple expansion and upside to consensus estimates.

Meanwhile, the share count for NVIDIA (NVDA 163 ***), Microsoft (MSFT 73 ***) and MasterCard (MA 134 ***) declined 10%, 3.7% and 2.2%, respectively, in the quarter. All three are CFRA hold recommendations.

However, Fidelity added to its stakes in PayPal Holdings (PYPL 61 ***) and Qualcomm (QCOM 52 ****). PPYL's 30% increase in shares to 63 million had resulted in a doubling of its exposure since the end of 2015 and as the stock has risen. Meanwhile, the 12% higher share count in QCOM to 57 million shares occurred as the shares have been more volatile.

Financials was the second largest sector, with 16% of assets, even as Fidelity was adding exposure to some of the largest U.S. banks in the second quarter, but cutting back its stake in others.

Share counts in Citigroup (C 67 ***) and Bank of America (BAC 24 ****) were up 4.4% and 3.8%, respectively in the second quarter. However, shares of Wells Fargo (WFC 52 ***) and JP Morgan (JPM 92 ****) fell 8.3% and 7.9%, respectively. In late June, all four companies announced plans to return cash to shareholders via dividends and/or share buybacks following the Federal Reserve stress tests.

Fidelity also remains a large shareholder of (AMZN 967 ****) and Telsa (TSLA 341 **), though the stakes were lowered by approximately 3% each within the second quarter. Meanwhile, Verizon Communications (VZ 48 ***) and Regeneron Pharmaceuticals (REGN 479 ***) were among the stocks that had a higher share count relative to the first quarter of 2017.

To read how these second quarter purchases and sales compares to the manager of American Funds please see our related Trends & Ideas published this week.

Still, and not surprisingly, Fidelity's largest equity mutual funds continued to hold many of these stocks at the end of the second quarter. For example, Fidelity Growth Company Fund (FDGRX 170 *****), a multi-cap growth fund, has top-10 holdings in Apple, Facebook, Microsoft, NVIDIA and Tesla. Meanwhile large-cap growth Fidelity Blue Chip Growth (FBGRX 84 ****) had top-10 stakes in the same stocks, though the weightings are not the same.

Both FDGRX and FBRGX rank positively, using CFRA's proprietary holdings-based fund ranking methodology. The funds also have below-average expense ratios and above-average three-year track records relative to their Lipper peer group.

CFRA provides rankings and research on more than 20,000 mutual fund share classes based on an analysis of the future potential performance of the underlying holdings, as well as performance, risk, and cost factors. This is conducted separately from our ETF research on 1,200 products. For example, FDMO is viewed favorably for its stakes in some of the aforementioned stocks, including AAPL, AMZN, BAC, JPM and MSFT.

Our stock, mutual fund and ETF reports can be found on the MarketScope Advisor platform.


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