Fidelity Small Cap Biggest Loser as Market Erases $2 Trillion
Fidelity Small Cap Biggest Loser
JB Reed/Bloomberg
A pedestrian passes the Fidelity Investments office in Cambridge, Massachusett.
A pedestrian passes the Fidelity Investments office in Cambridge, Massachusett. Photographer: JB Reed/Bloomberg
Fidelity Investments’ largest mutual fund that invests in small-company stocks was the biggest loser in the U.S. as the past week’s market plunge wiped out about $2 trillion in global equity value.
As world markets sold off on concern that the U.S. economy may be sliding back into recession, the $3.8 billion Fidelity Small Cap Stock Fund fell 11 percent from July 25 to Aug. 2, the most of 1,131 domestic stock funds with assets of at least $500 million, according to data compiled by Bloomberg. The $3.1 billion Aston/Fairpointe Mid Cap Fund and the $2 billion Ariel Fund were the next-worst performers, losing 10.4 percent.
The political tussle over the U.S. debt ceiling combined with lower-than-expected factory orders, declining consumer confidence and weaker household spending triggered a 6.8 percent slide in the Standard & Poor’s 500 Index over seven sessions before part of the U.S. benchmark’s loss was recouped yesterday with a 0.5 percent gain. All 10 of the worst-performing funds in the selloff specialize in small or mid-sized stocks.
“A lot of the sentiment that has soured on small caps has been driven by softening economic expectations,” Jeff Tjornehoj, an analyst with Denver-based research firm Lipper, said in an interview. “Small-caps tend to do best when economies are accelerating.”
Stocks continued their decline today on concern that the economy is weakening. The MSCI All-Country World Index sank 2.2 percent and the Standard & Poor’s 500 Index fell 1.7 percent at 10:09 a.m. in New York.
‘Strong Track Record’
“We encourage investors to take a long-term approach to investing and not to put undue focus on short-term results,” Adam Banker, a spokesman for Fidelity, said in an e-mailed statement. Manager Andrew Sassine “has a very strong track record” since taking over on July 1, 2008, and the fund has beaten its benchmark over three, five and 10 years, Banker said.
The Fidelity Small Cap fund has posted average annual returns of 5 percent over the past five years, better than 78 percent of similarly-managed funds, according to data from Morningstar Inc. in Chicago. Over the past 10 years, the fund has advanced 7.4 percent, beating 81 percent of peers, the data show.
Ariel’s John W. Rogers and Fairpointe’s Thyra Zerhusen weren’t available for comment, according to spokesmen for the two firms.
Over the past decade, small-company stocks have outperformed large stocks, Lipper’s Tjornehoj said. The average annualized return for U.S. small-cap stock mutual funds in the 10 years through through July was 7.1 percent, compared with 2.4 percent for large-cap funds, he said, citing Lipper data.
Stock Market Slump
U.S. stocks slumped for the third straight month in July as Congress debated a debt agreement and credit raters warned of possible government downgrades. The top-performing mutual funds were those that invest in gold and precious metals, including the $620 million Gamco Gold Fund, which advanced 9.4 percent in the past month as the price of the metal rallied to records. The $1.4 billion Federated Prudent Bear Fund, which bets on a stock- market decline, climbed 8.2 percent.
Fidelity Small Cap Stock Fund (FSLCX) slipped about 13 percent in the past month, compared with the 8.1 percent average decline of 102 funds tracked by Bloomberg that invest in small-company stocks. The fund dropped 8.2 percent this year through Aug. 2.
Assured Guaranty
The fund’s top holding at midyear was Assured Guaranty Ltd. (AGO), the bond insurer that has tumbled 22 percent in 2011. Airline company United Continental Holdings Inc. (UAL), which has fallen 24 percent this year, was the second-biggest position.
Fidelity Small Cap seeks to invest at least 80 percent of its assets in companies similar in size to those in the Russell 2000 Index, according to Boston-based Fidelity’s website.
The Ariel Fund, which invests in medium-size companies and is managed by Rogers of Ariel Investments LLC in Chicago, declined about 12 percent in the past month. The fund, whose stocks had an average market capitalization of $3.9 billion as of June 30, was hurt by its largest position, Interpublic Group of Cos. The advertising and marketing company plunged 16 percent on July 28 after reporting revenue and earnings that were short of analysts’ estimates.
Gannett Stake
The fund’s No. 2 holding was Gannett Co., the newspaper publisher and TV station owner. Gannett, whose papers include USA Today, has fallen 21 percent this year as advertising and circulation has slowed. Ariel lost about 5.3 percent in 2011 through Aug. 2.
Over the past five years, the Ariel fund has risen at an average annual rate of 2 percent, trailing behind 79 percent of rivals, according to Morningstar. The fund has returned 5.8 percent over the past decade, lagging behind 61 percent of peers, the data from Morningstar show.
The Aston/Fairpointe fund, managed by a team led by Zerhusen of Chicago’s Fairpointe Capital LLC, invests in medium- size companies. Top holdings as of June 30 were tax preparer H&R Block Inc. (HRB) and medical device maker Boston Scientific Corp. (BSX) The fund declined 11 percent in a month and 6.6 percent in 2011 before yesterday.
Over the past five years, the fund has advanced at an average annual rate of 8 percent to beat 99 percent of its peers, while it has returned 8.5 percent over the past 10 years to beat 90 percent of rivals, data from Morningstar show.
To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net
To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net
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