Fidelity American Disciplined Equity Fund

Analysis: This is a U.S. equity fund that is managed using a “sector neutral approach”. The managers will keep the broader sector mix roughly in line with the S&P 500, but will use Pyramis U.S. research capability to find what they believe to be the best investment opportunities. The fund’s manager Young Chin oversees the Pyramis U.S. equity research team who contribute the ideas to the fund.

In addition to maintaining a sector mix in line with the index, it strives to be fully invested at all times. In most cases, cash will be held to less than 2% of the fund.

Stock selection is done using a multistep bottom up process that looks to identify companies with earnings acceleration, technical breakouts, increasing margins or depressed valuations. In addition to the traditional financial modeling that takes place, the managers interview company management, competitors and suppliers to gain a much deeper understanding of the industry and the company. The result is very well diversified, holding more than 100 names in the fund.

Despite all of that analysis, the fund has failed to deliver much in the way of incremental return for investors. For the five years ending January 31, it has posted an annualized loss of 0.4%, while the S&P 500 has gained an average of 3.8% during the same period. In fact, it has lagged the index in 35 of the past 60 months.

While we like the concept of the fund, the results have not really supported it. Quite frankly, for a market as efficient as the U.S. large cap market is, it is our opinion that investors are better off going with a low cost ETF or a truly actively managed fund over this offering.