Fidelity’s Top 20 Favorite Stocks and the Fund Managers Who Own Them

Fellow Investor,

It’s common knowledge that Fidelity is where you put your money when you want to beat the market, not try to mimic it with index funds.

But hardly anyone knows about the small group of Fidelity funds that, when combined properly, drastically reduces investor risk – while handing investors profits that are a whopping 210% greater than what ordinary Fidelity investors get.

With such an impressive profit edge, you might think my strategy is a big secret. Truth be told, it’s the oldest mutual fund wealth-building strategy in the books.

I buy the manager, not the fund. Sound familiar? It should. The buy-the-manager strategy is and has always been the best way to build wealth with mutual funds.

About Jim Lowell

IPM_BestWorstFunds_JLJim Lowell is the editor of Fidelity Investor, the private and independent advisory published for individual investors seeking superior performance from their Fidelity investments.

Jim’s subscribers are known as “Fidelity’s Fortunate Few.” The fund selections they get directly from Jim double, and in many cases triple their returns. His strategies for investment income have boosted members’ annual income two-fold. Jim’s a bona-fide Fidelity genius.

He’s also a real-life Fidelity fanatic. He was born in Boston and he still lives there. He holds Master’s degrees from both Harvard University and Trinity College. He used to work at Fidelity, where he helped launch Fidelity’s most prominent publications, Fidelity Focus and Investment Vision, which turned into Worth magazine.

You can’t read an article about Fidelity in any major publication — The Wall Street Journal, The New York Times, Barron’s, Forbes, Fortune, you name it — without seeing at least one quote from Jim Lowell. Now you can get Jim’s best advice directly from him, as a subscriber to Fidelity Investor.

The trick, of course, is finding the best managers. And I’ve nailed it! I’ve created a proprietary manager ranking system that’s purely quantitative and rules based, which is to say – no subjectivity is involved or allowed.

I focus only on each manager’s daily performance versus their correlated benchmark and peer group – for each and every day they have managed money professionally — and for each and every fund they’ve ever managed!

Doing so let’s me see clearly which managers have the skill sets that I most want – in up, down or indifferent markets.

But while my proprietary manager ranking system is both unique and powerful, I have other proprietary metrics at my beck and call.

For example, I always want to know what individual stocks each manager owns as well as which stocks are owned by the most managers.

Who’s On First?

Peter Lynch, the inimitable star manager of the once mighty Magellan fund admonished his junior managers and individual investors alike to “Know what you own.”

That is great advice if you are investing in only a handful of names – but even then, knowing what you own won’t do you much good against the best and brightest money managers who will always be there first and leave the scraps for those who don’t invest in their funds.

Besides, you’ll have to stay on top of what you own by researching each and every holding every day… day in and day out … all the while trying to make an educated guess about what to own and worrying about when is the best time to add, subtract, remove and replace each one of your picks.

If you wanted to be a money manager you would have chosen it as a career!

It’s my goal to make absolutely certain that individual investors have a much, much better way to succeed.

My Fidelity Investor service delivers just that; secure long-term returns that surpass the S&P 500 time and again and take the guesswork out of knowing what to own, what not to own, when to own it and how much.

The Fidelity Investor Way

I realized a long time ago that the best route to investment success was buying the best managers.

What could be easier or better than that?

It turns out, the answer is NOTHING!

But I’m the kind of guy who never leaves a stone unturned or a key investment question unasked.

So I asked myself, what makes great managers great?

Answer: Their stock picks.

Wouldn’t it be great to be able to drill down past the fund level and get to the managers’ favorite stock picks?

Yes.

But how?

Knowing every stock of every manager, that’s how. And then pulling that data together to show the most owned stocks among all the managers – a way to see what stocks are most owned and hence most liked by the most educated, insightful and passionate professional investors on the planet.

Fidelity’s Top 20 Favorite Stocks

I’ve been tracking the top 20 most owned stocks by Fidelity managers – for as long as I’ve been writing my Fidelity Investor newsletter.

I’ve also been running a shadow portfolio that tracks just how well the top 20 most held stocks at Fidelity have performed.

Now, I bet you can guess by the fact that I am sharing this insider secret with you that the performance has been… fantastic!

But before I share the performance results with you, let me tell you more about my Fidelity Top 20 approach.

All mutual fund companies are required to report their funds’ underlying holdings at least semi-annually.

Fidelity has a long tradition of being much more transparent and forthcoming with its data than standardized rules and mere rule followers are. And when Fidelity releases the stock holdings of its underlying funds quarterly – I’m all over the data.

Tracking SEC filing data used to be a very labor intensive, time consuming project. And while the SEC’s website has recently made the data gathering process much less arduous, it still requires legwork to gather the data – and then my analysis and performance tracking and use of the stock holdings data comes into play.

Why does knowing what one of the world’s largest, best run and best performing investment firms owns matter?

I’m glad you asked.

Eleven of Fidelity’s Top 20 Favorite Funds are also found in the top 20 of the S&P 500.
Apple (#6 stock chosen by active management)
Microsoft (#3)
Alphabet (#1)
Amazon (#2)
Facebook (#5)
Berkshire Hathaway (#8)
JPMorgan Chase (#13)
Bank of America Corporation (#10)
Wells Fargo & Co (#18)
UnitedHealth Group Inc (#7)
Visa Inc Class A (#12)

Listed below are Fidelity’s Top 20 Favorite Stocks—the most owned, and hence most liked, by Fidelity’s top managers:

#1) Alphabet (GOOG): Google’s parent company. Fidelity has been (and may still be) the largest owner of Google stock. This high tech company figured out a way to turn a librarian’s business into megabucks. The ubiquitous search engine (sorry, Bing!) has an earnings model that is based on selling advertising to the hundreds of millions of daily searchers on its site.

#2) Amazon (AMZN): Why shop anywhere else? OK. I know Amazon is often knocked as a small business killer—like the big box stores. But I think that’s off base. I order books, lots and lots of books, through Amazon—and judging by the newspaper they’re wrapped in, and the stores listed on the label, you would think  I’ve visited more than 100 small book stores in the past year or so. At #2, Amazon’s intelligent design, excellent execution and consumer focus, clearly has Fidelity managers shopping for this stock with their dollars.

#3) Microsoft (MSFT): Mr. Softy. Software sales are the bread and butter of day-to-day life. Whether you have a PC or Mac on your desktop, lap, or in the palm of your hand, Microsoft Word, Outlook, PowerPoint and Excel are the essential tools of any trade—including passing kindergarten. Microsoft is another example of a former start-up turned mega-cap dividend-payer thanks to its focus on technology and its consumer base (which in this case was initially more of a business consumer than an individual one, but now encompasses both).

#4) iShares ETFs: The iShares position is a bit deceiving. Rather than exhibit a single iShares ETF stake, it reflects the assets in a basket of iShares ETFs. The top three by weighting are iShares Core S&P 500 EYTF (IVV), iShares Russell 1000 Growth (IWF) and the iShares Core MSCI Emerging (IEMG). A hidden truth: Fidelity’s active managers often use ETFs that hew to their fund’s benchmark as a source of liquidity and/or tradability. Rather than have to sell their best ideas, or rather than sell out of a long-term position outright and instead re-position it, such ETF holdings make sense. Here, the top-weighted ETFs reflect a clear preference for larger cap U.S. stocks as well as a growing interest in the emerging markets space.

#5) Facebook (FB): In the early days, it looked like Facebook’s founder Mark Zuckerberg had figured out a neat way to make himself billions of dollars… by taking his social watering hole site public. But the company has grown up since then, and with that growth comes all of the attendant responsibilities of being one of the world’s most influential companies. While the stock hasn’t been unfriended by the investing world, the headlines Facebook has garnered following the 2016 election have bumped the stock down a couple notches on this list. In the end, however, Facebook isn’t going to change its business model. It’s shown an intense focus on monetizing the site by means of capitalizing on ad sales beyond the desktop and laptop. Going mobile, being more instantaneous, has enabled Facebook to actually deliver more than mere likes: in addition to building its community, going mobile has been increasing their engagement (usage).

#6) Apple (AAPL): Who doesn’t know this brand? I’d argue that Apple has become as globally known as Coca-Cola and Google—the two most recognized brands in the world. Innovative excellence, durable customer bases, emerging consumer and business products, services and marketplaces certainly don’t get in the way of this company’s growth story.

#7) UnitedHealth Group (UNH): This is America’s largest healthcare (insurance, managed care) company, and even without the certainty of Obamacare funneling new customers to insurance companies, they will clearly benefit from the aging boomer generation demographic. Healthcare overall is a more defensive sector, with a consistent growth history and more promising potential growth future than most other industries.

#8) Berkshire Hathaway (BRK): The world’s largest active money management shop owns the world’s most famous money manager: Warren Buffett. I view this stake as a diversifier: Berkshire Hathaway owns financial service firms, utilities, railroads, manufacturers, and ketchup. It is a U.S.-centric play (letting U.S. multinationals serve as the path to foreign markets), value-oriented, and is a source of liquidity for the managers that own it (allowing them to sell Buffett rather than their own best ideas first).

#9) NVidia (NVDA): Graphic processing for graphic games, mobile computing and supercomputing research reflect how this company’s core business has grown to encompass nearly any aspect of computer use (from retail fun to serious scientific research). It’s hard to visualize technology without it.

#10) Bank of America (BAC): A consumer-focused lender that is inarguably a bellwether indicator of both consumer activity and lending liquidity. Rising rates help rather than hinder its profit making potential.

#11) Salesforce (CRM): A catchy ticker symbol, since CRM stands for customer relationship management —the business Salesforce is not simply in, but is looking to dominate. Salesforce has been growing in leaps and bounds, since any business in the customer service business (basically, every business) is looking for technologically efficient and sophisticated ways to service existing clients better and grow their customer base… Often the two are intertwined, since a happy client is, in effect, a great salesperson for that company’s service. This is another example of Fidelity’s managers looking for ways to capitalize on consumer and technology trends.

#12) Visa (V): Consumer spending is the driver of this company’s earnings, and consumer spending has been one of the bright spots of 2016’s financial landscape. I am betting on the U.S. consumer and their continued spending, and I think this stock is one way in which Fidelity managers are looking to charge ahead.

#13) JPMorgan Chase (JPM): Investment banking may be cyclical, but it looks like a growing economy could mint a multi-year increase in investment banking activity from more IPOs to increased mergers and acquisition. What’s more, the current administration’s policies should prove to be beneficial to the banking sector in the near-term and, hopefully, not lead to misbehavior over the longer-term.

#14) Adobe (ADBE): Adobe is a kind of clay used to make bricks. Beyond the brick and mortar realm Adobe is a technology company which lets us build, see, print and store nearly everything digital and visual. It is as embedded in the technology we use as Intel’s chips are. And as a necessary, technology staple, it’s not surprising to find it in Fidelity’s top 20 stocks.

#15) Netflix (NFLX): Fidelity managers have tuned into this entertainment company, which not only delivers binge-worthy content to its viewers but has also delivered mind-boggling returns for its shareholders. The world’s 10th-largest internet company by revenue, Netflix has expanded its offerings to include video-on-demand and streaming media—including a number of original series and movies. But if you’re wanting a DVD shipped to your house by mail, don’t fret; the company still delivers DVDs to over 4 million subscribers.

#16) Amgen (AMGN): What used to be an oxymoron no longer is: A dividend paying, blue-chip biotechnology stock. Its focus on cellular and molecular biologics provides a pathway to future discoveries and product developments for an aging demographic and a growing emerging market demand for more, better and less invasive healthcare solutions.

#17) CitiGroup (C): This global financial company is one of the bellwethers I keep an eye on during earnings season as a gauge for the health of consumer lending. It is the other side of the consumer equation coin; whereas Bank of America above helps me gauge consumer borrowing as a measurable sign of consumers’ health and wealth, CitiGroup tends a look at the health of the financial institutions that are helping to financing their purchases.

#18) Wells Fargo (WFC): After a scandalous setback, one of the strongest banking brands was getting back on a profitable track until yet another round of fines, regulatory sanctions and scandals hit in early 2018. Still, the banking sector is benefiting from healthy consumer loan demands—from personal loans to car loans to home loans. Add a rising rate environment to this stock’s ledger, and you can build an even-better case for the banking sector in 2018. Banks are bellwether indicators of the health or weakness of any financial system and the economy it supports.

#19) Activision Blizzard (ATVI) – Founded in 1979 when I was a senior in high school and had to pass a 35 word per minute typing test in order to graduate, this leading edge interactive entertainment game provider is a global player, with a presence in 15 countries including the U.S., Canada, Brazil, Mexico, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, Denmark, the Netherlands, Australia, Singapore, mainland China, Hong Kong and the region of Taiwan. Their iconic Call of Duty is among the most purchased and used online games ever—and to a lesser extent, they’re playing in the logistical and information storage side of data management, too. This stock might best be considered a technology “staple”; the way no one stops purchasing food, alcohol and drugs during recessions, and often buy more of them in good times, the demand for low-cost entertainment is one way to game good times and bad and come out a winner.

#20) Mastercard Incorporated (MA) – This financial services giant was founded in 1966 and is a readily recognizable name to every household in the U.S., if not the world. Yet that’s not to say that it won’t also capitalize nicely on consumer trends in the financial services space. For an example of what a “world beyond cash” might look like, consider the company’s plan to set up a contactless, pay-as-you-go system in the New York subway by 2019. Mastercard’s spot on the Top 20 Stocks list suggests that Fidelity managers expect the financial sector to see growth ahead.

The Top Fidelity Fund Managers Putting These Top Stocks to Work

Fidelity won’t tell you which of their funds they think will beat the indexes… they won’t highlight the most powerful funds for you… they can’t tell you how to combine the funds properly anyway. As a result, most Fidelity investors miss out without even knowing it.

That’s where I come in. As the head of the world’s largest independent Fidelity research organization, it’s my job to show individual investors like you how to make more money than the average Fidelity investor using my proprietary manger ranking system, performance tracking and the top stock holdings data above.

Now I want to share a little more about the superior Fidelity fund managers who put Fidelity’s top 20 favorite stocks to work.

Top Fidelity Fund #1: Low Priced Stock

Imagine having bought #7 stock UnitedHealth Group—whose price was around $250 at mid-year—when it was trading for less than $35. Right off the bat, you’re looking at a return of at least 614%—and that’s before dividends!

This scenario helps illustrate the profit potential behind the strategy employed in Low Priced Stock (FLPSX). Inimitable lead manager Joel Tillinghast (along with six other managers who run 5% of this fund under his tutelage) only buys stocks that are priced at $35 or less. When he launched this fund back in 1989, the limit was lower—$15, then $25 before its current $35—reflective of what I’d call market inflation over the decades.

Joel himself often describes the $35 purchase price governor as little more than that. But to meet Joel is know that such suggestions reflect an admixture of wry mirth and factual assertion en route to irony’s truth.

By his nature, but also in his stock-picking practice, that price limit has helped temper the fund in heated times. For example, when sock puppet stocks were all the rage back in 1999, and you couldn’t buy any stock under $35 (the price limit back then), Joel was forced out of the herd’s stampede and into, then over the bubble’s precipice.

By nature and in practice, Joel was then able to hunt among the market ruins, where he could (and often did) purchase mega cap blue chips that were selling at under $35. Then, since there’s no limit to price in terms of how long he can hold an investment he bought below $35, he could ride the market back to its prior top and through its record-breaking peaks en route to, inevitably, the next drop.

For the record, since he launched this fund, he has traveled this low-priced path through market feasts and famines with tremendous skill and enormous success, returning 3,773.1% versus 1260.1% for his Russell 2000 benchmark. Doing so, I might add, with a long tail of hundreds of small positions and a cash stake that has hovered around 10%.

Top Fidelity Fund #2: Contrafund

For over 27 years, the contrarian style and stellar track record of this fund’s manager, William Danoff, speaks to the strengths of this stock picker, who knows how to reward shareholders year-in and year-out. Danoff had an exceptional year in 2017 partly due to his tech-heavy tilt, returning 32.3% for the year through December 31 versus 21.8% for the S&P 500. For stellar performance recovery in the short term and unbeatable long-term returns, I named Will Fidelity Investor’s 2017 Manager of the Year in the January 2018 issue.

He makes investments across the board in companies believed to be undervalued by the public, overlooked by institutions, and/or underweighted by both. The portfolio is primarily domestic, with only 7% or so of the portfolio currently given over to foreign stocks.

His top holdings may look familiar, since all of them are found in this report: Facebook, Berkshire Hathaway, Amazon.com, Apple, Alphabet, Microsoft, Salesforce.com, UnitedHealth Group, and Visa.

My favorable view is based on this manager’s actual performance over meaningful time periods. A visit to my most recent manager rankings shows you what I mean. In addition to ranking #2 of all Growth and Growth & Income managers featured in the Manager Rankings System, Danoff crushes one of the measures I use to determine a manger’s skill: risk-adjusted relative career return. This is a manager’s return after factoring out both the fund’s benchmark and the level of risk the manager has taken on relative to that index; any positive number (above 0) would mean very successful active management, and that’s what you’ll find with Danoff. What’s more, Danoff’s 3-, 5- and 10-year relative returns, as well as those of his overall tenure, show that this fund a solid choice for capitalizing on the “Fidelity’s Top 20” stocks.

Top Fidelity Fund #3: Select Consumer Staples

I think the consumer staples sector is a kind of insurance policy against the rising volatility that attends a sea change in Washington. In good times, people buy more of this sector’s goods. In tough times, they still need this sector’s necessary items. In general, staples are things we ostensibly need; food, beverages, tobacco. Consumer staples stocks offer several attractive qualities, and, over the past 10 years, the MSCI IMI Consumer Staples Index has provided some of the highest returns of any of the MSCI sector indexes. While traditionally more return means more risk, staples offer great downside protection—they are the second-least volatile sector in the market, behind utilities. That downside protection comes in handy when markets pull back since staples tend to lose much less than the overall market.

In other words, this is a less risky, more defensive way to invest in a stock market that is likely to remain volatile and unpredictable. Even during market downturns, people are still going to go to the drugstore, take a shower, do laundry, and buy Pepsi or a beer.

With over a decade at the helm, the talented portfolio manager Robert Lee has been picking consumer staple stocks since June 2004. Over his tenure, Lee has consistently outperformed. While delivering outperformance is important, Lee has also managed to keep risk in line with the sector benchmark. If you turn to the monthly Performance Review on page 8 of the most recent issue of Fidelity Investor, you’ll find that Select Consumer Staples usually has the lowest risk out of Fidelity’s selection of consumer funds. (Risk, or relative volatility, being the fund’s 36-month standard deviation divided by the 36-month standard deviation of the S&P 500 index.)

Investors in Select Consumer Staples should be aware of a sizable allocation to tobacco stocks—while it essentially halved in the last quarter of 2017, it still makes up 13% of the portfolio as of March 2018.

I’d expect this fund to hold up relatively well in bear markets compared to other sector funds and the overall market, but it will still fluctuate up and down with the business cycle.

The Surprising Make Up of “Fidelity’s Fortunate Few”

When you join Fidelity Investor today, the group you’ll be joining might surprise you. Not all of them are investing aggressively for growth. Not all of them are rich, either. Some are just starting out and come to us with only modest amounts to invest. Some are quite well-off and you might wonder why they’re so eager to make even more money.

And there are others who are more conservative in their pursuit of profit. Some don’t even think about growth. They’re only investing for income. And yet, all these various types of Fidelity investors subscribe to the same advisory service… the one that has every Fidelity investor covered… Fidelity Investor.

Every monthly issue of Fidelity Investor is packed with information you just can’t get from Fidelity, including these 5 expertly diversified Model Portfolios:

  • Global Quant Income
  • Global Quant Growth
  • Growth
  • Growth & Income
  • Income

Members of Fidelity Investor also get two more model portfolios: Annuity Growth and Annuity Growth & Income.

But that’s not all!

When you try a risk-free subscription to Fidelity Investor, you will also receive a special low-cost Membership rate and 2 valuable Free Reports:

  • Top Fidelity Sector Funds & ETFs
  • Fidelity Fund Manager Rankings

And if at any time you want to discontinue your subscription, you’re still way ahead because you’ll never be asked to return anything we send you — including your 3 free reports that are automatically yours as a Member.

Fair enough? Well it gets better…

Take 30 days to decide if you like Fidelity Investor and all the tangible extras that come with it, including:

  • Monthly issues of the award-winning newsletter Fidelity Investor delivered to both your mailbox and available on the website. Each issue contains my expert advice on the Fidelity family of funds and ETFs and the latest information on today’s market.
  • Weekly emailed hotlines where you can keep in touch with my latest research and market analysis so you never have to go it alone.
  • Special alert emails including timely new opportunities as well as an update on current market conditions, especially during times of volatility.
  • Performance updates on all 5 of the Fidelity model portfolios and my review of nearly 100 401(k) plans.
  • 24-hour access to the member-only website from your tablet or smartphone, where you’ll find past online issues of the newsletter and hotlines as well as the model portfolios. Exclusive fund manager interviews in the monthly issues.

If after 30 days you’re not 100% satisfied for any reason, simply call my customer service team, and I will refund every single penny you’ve paid. All tangible extras are yours to keep with my compliments just for giving us a try.

And….

Accept this rare opportunity now — within the next 24 hours — and you’ll one more bonus… my latest special report, The Worst Fidelity Funds No One Should Own.

You don’t want to find any of these funds in your portfolio. But if you do, no worries.

You’ll be armed with so many new ways to boost your Fidelity profits it won’t matter how many Fidelity flops are in your portfolio… as long as you immediately switch your losers to Fidelity’s best funds (also given away for free in this special bonus report!), the ones you’ll learn about when you respond in time.

All that’s needed is your permission. We’re all set here. We’re ready to give you all your gifts… ready to impress you with our just-released issue of Fidelity Investor… ready to show you the money and the life enjoyed by “Fidelity’s Fortunate Few.”

Here’s What Happens Next

The moment you respond, you’ll feel a rush of excitement and expectation. That wonderful, exhilarating feeling will stay with you and reignite with each new issue and every new special report you get.

You’ll see how easy it is to break away from being average. You’ll see a brighter financial future than you thought possible. You’ll be amazed to discover you can easily exceed your own expectations by doing nothing more than what you’re already doing… investing in Fidelity funds.

The experience also gives you the rock-steady confidence in your financial future, more assurance of reaching your goals, and the overwhelming joy of relief from worrying about money for the rest of your life… those are all priceless!

Membership, however, has a price, and the good news is…

Your Introductory Rate is Special…
With Savings of Over 50%
On our Standard Membership!

My publisher has agreed… I now have the green light to bring you in as a member for just $99 for a full year (the standard rate is $229), as long as you let me know within 36 hours. After that? You’ll miss out on this incredible savings opportunity and be asked to pay more.

By the way, at this ultra-low rate of just $99, your membership will more than pay for itself within a month or so, depending on how much you have invested with Fidelity.

However much it is, count on that number zooming north once you experience Fidelity Investor.

I guarantee it!

Sincerely,

JIM_signature
Jim Lowell
Editor, Fidelity Investor