Fidelity UK Growth
Can this fund's new manager turn it around?
Tom Ewing took the helm here early in December 2007 from predecessor Carlos Moreno. A change was needed. Moreno had delivered several years of underwhelming performance since taking over from Frederic Gautier, and the fund hasn't really been a standout since Sally Walden ran it from 1985 through late 1998. This is Ewing's first stint managing retail money, but he has been an analyst at Fidelity since 2000 and in 2007 he was also given a pilot fund of internal money to run in a similar style.
Ewing is nothing if not bold in his approach. He seeks companies that he thinks have growth opportunities ahead of them that aren't fully recognised by the market, and will use themes to guide his work. For example, when we spoke with him in the spring, he was looking to benefit from China's ascendance as an economic power. Although this is a UK fund, he thus added positions in resources firms such as Rio Tinto and related plays such as PZ Cussons, which has a Nigerian presence that is benefitting from the increased oil wealth in that nation. Ewing also backs his bets with significant assets--the number of equity holdings in the fund had dropped from north of 70 last November to 58 by 30 June, and he notes it could go as low as 35. Top positions are also large, with BP soaking up 9.7% of assets at 30 June and 44.3% of assets in the fund's top 10 holdings.
We like a manager with conviction. However, the risks here are well worth noting. The cumulative changes have led to a large increase in the fund's exposure to the Morningstar manufacturing supersector: At the end of June, the fund's exposure stood at 61% of assets, up from 23% at the end of November 2007 (the supersector includes consumer goods, energy, industrial materials, and electric/gas utilities issues). Most of that money came out of the services supersector, where the fund weight fell to 31% from 62%, with the biggest chunk (17.5%) coming out of financial services, where Ewing cranked the fund's weight down to just 2.5%. The main additions came in energy (25% of equities at 30 June) and mining (19%). The fund is very exposed to resources prices, which are volatile and dependent on economic growth. Couple that with the fund's concentration level, and investors here need to be aware that they could be in for a rough ride. Indeed, the fund has lost more than the Morningstar UK Large-Cap Growth category norm in the past three months as resources issues have taken a beating, although it remains ahead of its peer group for the year to date.
It's far too early to say if Ewing can make his approach work here. On the plus side, he has the backing of one of the industry's deepest analyst pools and he cannot be accused of failing to back his best ideas. On the other, he doesn't have much experience in running large pools of assets, and the risks here are high in our view. Given all the other UK equity offerings to choose from, we see no good reason to select this one until we see more of what he can do.
