Fidelity Investments has desperately needed one thing above all else for more than a decade.
The mutual fund giant has needed a sustained market that favors growth-oriented stocks and, for now, the good old days are back. The Standard & Poor’s 500 index just closed the books on its best first-quarter performance since 1998, with a gain of 12 percent, and growth stocks were leading that charge. Over the past six months, the S&P 500 has soared 25 percent.
Most of Boston’s mutual fund firms - but Fidelity in particular - thrive in this kind of environment. It’s no accident that Boston became the world’s mutual fund capital during the roaring growth-stock markets of the 1980s and 1990s, only to shrink in global standing year after year ever since. Today, Boston takes a back seat to other mutual fund centers in places such as California - California! - because the money and action have been moving elsewhere for so long.
Yes, Fidelity and Boston’s other big investment companies offer every conceivable flavor of mutual funds and a few, notably Wellington Management, have grown bigger in the past decade because they emphasize other kinds of funds.
But growth stocks really are the lifeblood of the city’s leading fund managers. The fact that those stocks are doing so well right now makes it possible for me to write something I have not typed in a long, long time: Fidelity is having a great year.
The sheer size and number of Fidelity funds benefiting from market trends dwarf results at other Boston companies like Putnam Investments and MFS Investment Management, which have also benefited. Today, the focus is on them.
“It was a spectacular first quarter, one of the best growth rallies, and a battleship like Fidelity, whose guns are fully loaded with growth stocks, clearly won the day,’’ says Jim Lowell, publisher of the independent Fidelity Investor newsletter.
Fidelity Contrafund - a giant at nearly $81 billion in assets under management - is just one of 11 Fidelity growth-oriented funds above $1 billion in assets I found that have outperformed the S&P 500’s recent stellar results.
That list includes some famous funds, some with names you probably wouldn’t recognize, and even Fidelity Magellan, which had become a symbol of the company’s regression for a decade.
A small sample: Contrafund earned 14.9 percent during the first quarter, while the $42 billion Fidelity Growth Company fund soared 21.2 percent and the $35 billion Low-Priced Stock fund advanced 14 percent. Keep in mind, those three funds alone own more stocks than most of Boston’s investment firms.
But wait, there’s more: The $14.7 billion Fidelity Blue Chip Growth fund gained 18.7 percent during the quarter. Magellan is still saddled with a dreadful long-term performance record but the $16.5 billion fund earned 16.4 percent during the first three months of this year. A handful of other Fidelity funds earned between 14 percent and 16 percent.
That group of 11 Fidelity funds also kept pace with a racing S&P 500 over the past six months. Those performances ranged from total returns of 24.6 percent to more than 30 percent.
The stock market’s rising tide certainly propelled all those funds. One other thing most of Fidelity’s big growth-stock fund managers shared in common: big holdings of Apple Inc. shares, which have appreciated by 52 percent so far this year.
Eight of the 11 Fidelity fund portfolios I looked at counted Apple as their single-largest holding. Contrafund owns more shares of Apple than any other mutual fund in America - 14.1 million shares. Fidelity OTC Portfolio put 14.5 percent of its money into the stock.
So what happens now? The market trend that boosted funds managed by Fidelity and other investment firms has been powerful but relatively brief. That rally began last fall when investors shook off their worst fears about the economy. The market - and the performance of so many stock funds - depends on that recovery and a conviction it will grow more powerful in the future. Call that a big unknown.
But for now, Fidelity and Boston’s other big growth-stock fund firms can enjoy some time back in the sun.