Schemes from Fidelity Mutual Fund are not chart toppers. Opt for them if you are looking for stability and consistency.
Talk to the senior management at Fidelity Mutual Fund and they will assuredly tell you what sets them apart are their "excellent investment management capabilities". They would then proudly go on to say that the hallmark of their money management style is a commitment to fundament in-depth research.
In all fairness, these are not just empty words. The fund house does adhere to the philosophy that the starting point of investment management is research. A look at their investment behaviour brings that to the fore.
Their fund managers swear by bottom-up stock picking. They will rarely, if ever, chase momentum stocks or the latest fad in the market. They go strictly by fundamentals. Even if they are punished by way of short term performance, they stick to their guns. They shun excessive concentration and are believers of diversified portfolios. They refuse to plunge headlong into cash in market downturns. They ardently seek to be consistent performers and in doing so, give their investors a good night's sleep, whatever be the turmoil in the market.
These are all essential features of Fidelity funds which hold the fund house in good stead. But our grouse is that none of Fidelity Mutual Fund's schemes are known to deliver spectacular returns. While they do make the occasional top quartile appearance, they are not chart toppers and more often than not find themselves in the 2nd and 3rd quartiles (see box Relatively Speaking), when compared with peers in their category. Fidelity Mutual Fund has great brand value and has become synonymous with research, but somehow that does not translate into outstanding returns.
We look at four equity schemes here (check graphs). Do the schemes outperform their benchmark - the BSE 200? Certainly. But what was even more intriguing is how closely they follow the benchmark by way of performance. Which leads to pertinent questions: Are these to some extent closeted index funds? Before you gasp with horror, we do admit, that is a bit of an exaggeration. So would it be safe to say that the fund managers closely monitor the indices (BSE 200 or Sensex), when constructing their portfolios? They deny it (see interview Betting on Fundamentals). In fact, fund manager Sandeep Kothari says that he does not track the benchmark at all when constructing his portfolios. On a closing note, it's worth mentioning that Fidelity Mutual Fund is one of the stable fund houses around with pretty decent offerings in its bag. They have evolved in the Indian scenario to adjust the market environment here. They now declare their portfolios every month (like other players), which they would initially do only once in six months. Their internal regulations at first permitted them a maximum 4 per cent exposure to a single stock. Over the past few years, that has been removed. In fact, in May 2009, quite a few of its funds had an exposure of more than 8 per cent to Reliance Industries Ltd. Investors who put their money here can be sure of stability and over the long run, will be rewarded by above average returns. But they must be aware that these funds do not stand out exceptionally and have certainly not dazzled. And, going by their investment style, are unlikely to do so. But should the market plunge, as it did in recently in 2008, they will not collapse like a pack of cards.
Relatively Speaking
Fidelity India Special Situations (2007 - 2009) has never been a first quartile performer, but has occupied positions in all the other three quartiles during the 3-year period. However, it could be argued that the inherent nature of the fund will result in periodic underperformance.
Fidelity Equity (2006 - 2009) just about managed a 1st quartile performance in 2006. In 2007, it dropped to 3rd quartile, which was understandable when the market got overheated and the fund manager refused to chase fads, avoid Real Estate and stayed away from stocks whose valuations were ridiculous. But in the downturn in 2008, the fund managed a 2nd quartile performance and stayed in that bracket in 2009 too.
Fidelity India Growth (2008 - 2009) has always had top 2nd quartile annual performances in its short history.
Fidelity Tax Advantage (2007 - 2009) has either been a 1st quartile or 2nd quartile performer.
* The returns looked at are annual returns in the fund's history.
* Three of the funds have been compared with the entire equity diversified peer group. Fidelity Tax Advantage has been compared with other tax saving funds - the Equity Linked Savings Scheme (ELSS) category.
Over a 3-year period (February 28, 2010), the annual diversified equity category average return has been 8.30%. Fidelity Equity (10.05%) outperformed while Fidelity India Special Situations underperformed (5.71%). Fidelity Tax Advantage outperformed its category average (7.96%) with a return of 11.11%.
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