| Fund Company | Fidelity Investments Canada |
| Fund Type | U.S. Small / Mid Cap Equity |
| Rating | $$$$ |
| Style | Small Cap Growth |
| Risk Level | Medium High |
| Load Status | Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Steve MacMillan since May 2011 |
| MER | 2.33% Front End, 2.54% DSC |
| Code | FID 261 – Front End Units FID 561 – DSC Units |
| Minimum Investment | $500 |
Analysis: Since taking over the fund in May 2011, Steve MacMillan has done a good job for investors, gaining 18.6% to September 30, outpacing not only the benchmark, but also most of his peer group. During his tenure, he has made a few changes, most notably reducing the number of holdings from nearly 200 to a more manageable 40. He also increased the average market cap of the holdings, pushing it much closer to the mid cap space. This did two things; it improved the quality of the investments in the fund, and lowered the volatility profile.
The fund is benchmark agnostic, and looks for well managed companies, with good franchises that dominate their markets. Fidelity has implemented a risk control which limits sector exposure to +/- 10% of the index weights. The bottom up stock selection approach relies heavily on Fidelity’s extensive research team to help identify investment ideas. Once a company is selected as a buy candidate, he meets with the management to confirm the fundamental findings. He will look to be patient and will generally take a 3 to 5 year investment view. Based on this, it is expected that portfolio turnover will be lower than 50%.
The portfolio has been pretty stable with healthcare, consumer discretionary and technology being the key sectors. Combined, they make up 57% of the fund. From a sector point of view, this positioning will make it a nice compliment to a Canadian equity fund, which tend to be very light on those sectors.
The manager feels that the U.S. is likely to experience a prolonged period of muted economic growth, but still feels that it will be a safe haven in the current environment. The portfolio is filled with companies they believe are not dependent on a strong economic or cyclical environment.
Costs are reasonable, with an MER that is just below the category average. For investors looking for exposure to U.S. small caps, this fund is a great way to do just that. The biggest drawback is that the manager has a somewhat limited track record on the fund. We will continue to monitor the fund closely