Fidelity Small Cap America

Analysis: Investors have been rewarded handsomely since Steve MacMillan took over the management duties of this fund in May 2011. Since taking over, the fund has gained 70%, with more than half of that rise coming in 2013. Year to date, the fund is up 41%, which has left the benchmark and competition in the dust.

To do this, he runs a benchmark agnostic, concentrated portfolio of around 40 well managed companies that have good franchises and dominate their markets. The stock selection process is a bottom up one that 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%.

As of June 30, consumer discretionary, industrials and healthcare were the key sectors, which combined make up nearly 70% 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.

Costs are reasonable, with an MER that is just below the category average.

While recent returns have been stellar, the absolute level of return is not sustainable going forward. I expect that we will see a period of more modest returns going forward. I would also expect to see the volatility of the fund start to creep upward as we move forward from here. Still, for investors who are looking for exposure to U.S. small caps, it is my opinion that this fund is a great way to do just that. I expect it to deliver above average returns with below average risk.