Looking for stock tips from hedge fund managers? Try active manager Fidelity, instead

The likes of Carl Icahn and George Soros may run a lot of money, but the Boston-based fund giant manages a lot more

Aug 16, 2016 @ 12:44 pm

By John Waggoner

Your clients may be showing you stock ideas from hedge fund managers such as Carl Icahn (Allergan!) and George Soros (Barrick Gold!). They run a lot of money.

But Mr. Icahn and Mr. Soros are pikers compared with some of the biggest mutual fund companies. Fidelity Investments, for example, runs about $1.4 trillion in long-term assets. What are they buying these days?

According to Todd Rosenbluth, director of mutual fund and ETF research at S&P Global Market Intelligence, Fidelity is heavy on technology, which accounts for about 23% of its assets. Among the Boston behemoth's favorites:

• Activision Blizzard (ATVI). Fidelity's share count of the home entertainment software stock rose 93% in the second quarter.

• American Tower (AMT), a specialty REIT that owns and operates wireless towers. Fidelity increased its share count 20%.

• Tesla Motors (TSLA), the electric car manufacturer, was another Fido favorite. Fidelity's share count also jumped 20% in the second quarter.

But not all tech is in favor at Fidelity. Its overall stake in Apple (AAPL) fell 6.9%, to 128 million shares, in the second quarter. Fidelity has been reducing its Apple exposure for four quarters, Mr. Rosenbluth said. Archrival Microsoft's (MSF) share count at Fidelity tumbled 20%, to 122 million shares. Fidelity's stake in Amazon (AMZN) also fell a modest 1.6%.

But it wasn't all tech at Fidelity. The company boosted its holdings of Vertex Pharmaceuticals (VRTX) 48%, to 21 million shares. But it trimmed its share count of Johnson & Johnson (JNJ) by 18%, to 37 million shares, and cut United Health Care 3.8%, to 58 million shares. What stands out about Fidelity's moves are its interest in growth companies — Activision Blizzard in tech and Vertex in health care, versus Microsoft and Johnson & Johnson (JNJ). (Both of the latter companies remain among Fidelity's largest holdings).

It's not always terribly illuminating to look at other fund companies' stock holdings. You won't learn much from Vanguard's top pick, said Dan Wiener, editor of The Independent Adviser for Vanguard Investors. “Their indexing assets are so huge, it doesn't tell you anything,” Mr. Wiener said. “So their biggest holding is Apple? Thanks for telling me.”

But it's worthwhile looking at the top holdings and movements – among an active manager such as Fidelity in first quarter, said Jim Lowell, editor of The Fidelity Investor. “In the main, knowing what Fidelity's top 20 or top 50 positions firm wide was – and now is, can set the stage for perceiving a trend among managers,” Mr. Lowell said.

Even looking at Fidelity's largest holdings can tell you what management has the greatest interest in. The four largest positions are, in descending order: Alphabet (GOOG), Facebook (FB), Apple (AAPL) and Amazon (AMZN).

The most surprising part about Fidelity's top 20 holdings: iShares ETFs at No. 5: “Quarterly regulatory filings don't require firms to break out their ETF holdings by individual ETFs,” Mr. Lowell said.

“But they do require the underlying funds to report in order for the firm to summarize their assets in ETFs. The fact that iShares ETFs represent the ninth largest position in Fidelity's stock lineup tells me that Fidelity's active managers are using ETFs as a source of liquidity in their portfolio &mdash: a more elegant way to stay fully invested since the managers don't have to worry about holding aside cash to meet redemptions.”

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