18
Fidelity closed
Fidelity Small Cap Discovery
FSCRX
to new investors as of Jan.
31
. The fund saw a
spike in inflows, and I’m pleased to see that Fidelity
responded quickly. The fund, which has $
3
.
9
billion in
assets, went from getting $
87
million in net flows in
August
2012
to $
247
million in December.
Manager Chuck Myers also runs $
3
.
1
billion in
Fidelity Small Cap Value
FCPVX
. This fund remains
open, but it has gotten slower inflows. Its monthly
flows did not top $
100
million in
2012
. However, it
was given a comanager as Derek Janssen was
named to the post in January
2013
.
At this point, it sounds like Janssen is more of an
assistant portfolio manager than someone with equal
authority to Myers. That’s a crucial distinction, as
Janssen doesn’t have a public track record and the
fund’s appeal is largely attributable to Myers.
We’ve been fans of Myers for a while but hanging
over our discussions always has been the issue of
whether Fidelity would close his funds in a timely
fashion or let them grow to crazy levels like they did
at
Low-Priced Stock
FLPSX
. In its history, Fidelity
generally has allowed funds to get enormous, but
Myers’ focused small-cap strategy is clearly more
sensitive to asset size than that of a Will Danoff or
Steve Wymer.
So, I’m encouraged by the developments, though
I wouldn’t say there’s no chance of further growth.
Small Cap Value is still open and even Small
Cap Discovery still could get more money from
existing shareholders.
We raised our rating of Fidelity Small Cap Discovery
to Gold but kept Small Cap Value at Silver. There’s
a fair amount of overlap, and flows into one likely will
affect both funds. However, Small Cap Discovery
has greater certainty about it. It is closed and it
doesn’t have a comanager, so our confidence that the
fund will continue to do what it has done is a little
greater. As this case shows, there’s a fairly thin line
between Gold and Silver.
Myers runs a concentrated small-cap, value-leaning
strategy in both funds. In seven years at Discovery
and nearly five years at Small Cap Value, Myers has
run circles around his peers and benchmarks. Small
Cap Discovery has a
75%
cumulative return versus
22%
for its benchmark since Myers took over the fund
in March
2006
. The fund had a remarkable string
of five straight top-quartile performances from
2008
to
2012
. Only
10
funds in our entire U.S. fund data-
base can make a similar claim.
Small Cap Value has a cumulative return of
45
.
9%
to
19%
for the benchmark from May
2008
through the
end of
2012
. Its returns haven’t been quite as strong
as Discovery’s because Myers runs it with a greater
value bias. In turn, that has meant the fund has more
in financials. But there’s little reason to assume
that financials will be as much of a hindrance as in
recent years.
If you own a number of funds run by Fidelity, Myers’
distinct strategy is a welcome antidote to the
typical
200
-stock, fast-trading, growth-leaning fund
that has long been a Fidelity trademark. Myers
is a Warren Buffett fan, so he accordingly keeps turn-
over below
30%
most years and has
70
or fewer
holdings in his funds.
Fidelity seems to recognize the value of Myers’ differ-
ences and his skill in small caps, and the firm hasn’t
attempted to move him to one of its giant funds.
Myers invests more than $
1
million of his own money
in both funds.
If you missed your chance to get into Small Cap
Discovery, Small Cap Value still holds plenty of
promise. Because Myers’ record is shorter there,
investors haven’t yet poured into the fund.
œ
Welcome News From Fidelity
Tracking Morningstar Analyst Ratings
|
Russel Kinnel
What Are Morningstar
Analyst Ratings?
Our ratings are chosen for long-
term success. Analysts assess
a fund’s competitive advantages
by analyzing people, process,
parent, performance, and price.
They do rigorous analysis and
then submit their ratings to a
committee that vets their work
for thoroughness and consistency.
