The Fidelity New Millennium Fund (FMILX) seeks capital appreciation by investing in both domestic and foreign common stocks. Fund managers look for holdings that stand to benefit from long-term trends and changes in the marketplace, such as product innovation, advances in technology and new governmental policies. Managers also consider adjustments in the economy, demographics and social attitudes. The fund invests in value and growth stocks across the full spectrum of market capitalization.
Investment Strategy
A member of the Fidelity team since 1999, John Roth is an experienced manager who took the helm of FMILX in July 2006. Supported by a staff of 135 analysts, Roth has successfully implemented a growth-oriented, valuation-sensitive investment strategy that has performed well over time. Although there is some overlap with Fidelity’s Mid-Cap Stock Fund that Roth also oversees, the fund’s performance is measured against a benchmark of the Standard & Poor’s 500 index (S&P 500). FMILX has moved from mid-growth to the large-growth category in recent years. While FMILX skews toward large-cap names, Roth still uses an all-cap approach for stock selection that expands beyond the confines of the benchmark. The fund’s overall market cap weighting is typically well below that of the category average and its S&P 500 benchmark. His primary focus is on areas of the economy that he believes are poised for secular change.
On the growth side, Roth looks for companies with highly regarded products and services that also demonstrate strong earnings potential. Investment criteria include companies with attractive valuations that are out of favor and have a catalyst for improvement. The management team holds a number of modestly sized investments to mitigate company-specific risk and generate attractive risk-adjusted returns over time. Roth casts a wide net across sectors, market caps and geographic regions when evaluating opportunities. Roth also breaks from his peers by incorporating out-of-favor cyclical stocks using a process that most growth managers avoid. The fund’s value-sensitive approach can result in it being out of step with its pure growth-oriented peers. Roth is a bit of a contrarian and tilts the fund toward value stocks based on the current stage of the recent bull market.
An early entry into energy shares was detrimental to the fund in 2015, but has paid off in 2016. Roth has also diverged from the benchmark with his overweighting of financial names. The strategy has produced strong returns during his tenure as fund manager. The team also considers economically sensitive cyclical names based on supply-and-demand dynamics within the firm’s industry and the current business cycle’s earnings potential.
Portfolio Composition and Holdings
As of September 2016, the three-star Morningstar-rated large-growth fund had $3 billion in assets under management. There are 165 individual stocks in the portfolio. The fund has an 86 percent exposure to domestic shares and 10.69 percent invested in foreign issues. The majority of the foreign investment is in developed markets, primarily Canada, France and the United Kingdom. The fund holds slightly more than 3 percent in cash. In addition to a 21.98 percent exposure to giant-cap shares, FMILX has 32.78 percent in large-caps and 33.17 percent invested in mid-caps, with 8.11 percent allocated to small-caps and 3.97 percent to small- and micro-cap shares. FMILX is underweight health care, consumer cyclical and discretionary sectors and is overweight energy, financial services and information technology. The top 10 holdings comprise 10.32 percent of AUM and include (in descending order) Cisco, Facebook, Williams Companies, Verizon, Chevron, Amgen, Eurofins Scientific, Visa, Boston Scientific and Bank of America. The portfolio has a P/E ratio of 20.09 and a price-to-book ratio of 2.12. FMILX has a 57 percent turnover ratio that is several percentage points below the category average.
Historical Performance and Risk
The fund benefited recently from underweighting biotechnology, life sciences and pharmaceuticals based on concerns about drug prices and possible political investigations into various industry practices. The fund’s overweighting of the energy sector was also beneficial, as commodity prices rebounded. An allocation toward financial services as bank stocks have risen in anticipation of higher rates has also pushed FMILX ahead of many competitors.
FMILX has delivered one-, three- and five-year returns of 14.57 percent, 7.87 percent and 14.7 percent, respectively. These compare with the category averages of 10.6 percent, 9.23 percent and 14.98 percent over the same periods. FMILX has delivered an overall return of 13.14 percent since its inception in 1992. With a three-year beta and standard deviation of 0.98 and 11.53, the fund earns a below-average risk rating from Morningstar.
Fees, Expenses and Distributions
FMILX has an initial minimum investment of $2,500 with no subsequent minimums. There is a $2,000 minimum balance requirement. The 0.71 percent management fee for FMILX is below the average for its peers. An additional performance fee can change the expense ratio. Because the fee is based on the fund’s three-year performance relative to the S&P 500, investors do not pay the fee when managers underperform. The highest fee during Roth’s tenure was 1.09 percent. Roth has over $1 million of his own money invested in the funds that he manages, which aligns his interests with those of shareholders. The fund made long-term capital gains distributions in December 2015 and January 2016 for $3.668 and $0.152 per share, respectively. There was also a dividend income distribution of $0.345 per share in December 2015.
Outlook
The fund’s above-average investments in small- and mid-cap shares as well as its exposure to cyclical stocks can increase volatility. The advantage is that the fund has captured 109 percent of the gains of its underlying benchmark. Roth’s stock-picking acumen has paid off in numerous sectors, especially financials, energy and consumer staples. Thus, the fund is a good long-term vehicle for investors seeking capital appreciation. Currently, we have ranked this fund as a Strong Buy with a Ranking of 85.