|
 The $941 million Fidelity Select IT Services fund has returned an
average of 10.9 percent a year since March 10, 2000, when the Nasdaq
Composite hit its record high, according to Lipper data. That's more
than double any other technology fund tracked by Lipper, and
trounces the 0.1 percent a year generated over the same period by
the PowerShares QQQ ETF, the most popular exchange traded fund
tracking the Nasdaq.
"This is a fund that doesn't have Google, doesn't have Microsoft.
This is a wholly different subset of technology than most investors
are familiar with," said Todd Rosenbluth, director of mutual fund
research at SP Capital IQ.
The fund invests at least 80 percent of its assets in firms that
provide day-to-day services such as payment processing and web
hosting, rather than looking for those with zooming growth, said
Kyle Weaver, 38, who has been lead portfolio manager of the fund
since 2009. The fund has largely kept the same investment approach
since its inception, he said.
"We're looking for companies that have a high degree of recurring
revenue that aren't very glamorous and operate in the background of
our lives instead of front and center," he said.
Instead of Apple and other big household names of the Nasdaq, Weaver
owns large positions in companies that few lay investors have heard
of, such as Vantiv Inc, a payments processing company, and data
analytics company Cognizant Technology Solutions Corp.
Still, the size of the bets the fund takes on companies may give
investors pause, Rosenbluth said.
"This is a very concentrated fund and while it has companies like
IBM that people have heard of, it has a mixture of small and mid cap
companies that will fly below the radar for most investors," he
said. The fund charges 83 cents per $100 invested, a level that
Morningstar considers below average.
BETTING ON PAYMENTS
Its top holdings are Visa Inc and Mastercard, both of which are up
more than 220 percent over the last five years. Together, the
companies make up about 26 percent of the fund's assets. Neither is
the top holding in any other technology fund, according to
Morningstar data.
These "names we know but don't always associate with technology"
have "been on a tear over the past three years," said Jeff Tjornehoj,
head of Americas Research at Lipper.
[to top of second column] |
Outside of its bets on Visa and Mastercard, the fund has profited
more from its positions in medium and small-sized companies than
from the large companies it holds. International Business Machines,
for instance, is up just 27 percent since the fund purchased it in
early 2010, compared with a 130 percent rally in the broad Nasdaq
Composite over the same time.
Weaver splits his portfolio roughly evenly between large and small
companies. He recently added to positions in Vantiv Inc, a $7
billion market cap payment processing company, as well as Alliance
Data Systems Corp, a $17 billion market cap company that operates
customer loyalty programs and branded credit cards.
These companies that operate in the background tend to have more
profitable niches and trade at less expensive valuations than
average, said Weaver.
Vantiv, for instance, trades at a forward price-to-earnings ratio of
15.6, below the 20.7 multiple for the Nasdaq as a whole, while
Alliance Data Systems trades at a forward P/E ratio of 16.3.
Vantiv's shares are up 16 percent over the last 12 months, while
shares of Alliance Data Systems have slipped 1.3 percent.
"Apple is the biggest stock in the Nasdaq and everyone knows why,"
Weaver said. "But I bet very few people know if ADP or Paychex cut
their last paycheck."
(Reporting by David Randall; editing by Linda Stern and John
Pickering)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
