Morningstar Advisor - August/September 2010 - 24

Gray Matters

Fidelity Advisor Mid Cap II FIIAX

Not Worth Your Time
Fidelity Advisor Growth & Income FGITX

Fidelity Advisor Equity Income FEIRX

Manager Tom Allen has evaded many Fidelity-watchers’ radar screens, in part because his longest-tenured charge has been a fund designed for variable annuities. He’s delivered terrific returns at that offering and has fared just as well here managing money in the same style. Allen mixes conservatism with opportunism. His valuation consciousness and high-quality focus are indicative of the former, while his tendency to dabble in small and large caps and to venture overseas typifies the latter. (Mid-caps account for just 55% of assets, while non-U.S. stocks are nearly a fourth of the portfolio.) The fund’s diverse mix may not fit easily within investors’ portfolios, but given Allen’s talents, it’s worth making room for it.
Fidelity Advisor Small Cap Value FCVAX

Manager James Catudal hews closely to the S&P 500 Index. He eschews sector bets, and his portfolio excludes few of the index’s largest constituents. That benchmark-hugging style has made it difficult for the fund to stand out. Since Catudal came aboard in November 2005, it has trailed the S&P 500 by 1 percentage point annually. Catudal’s nondescript strategy, combined with the fund’s excessive 1.34% expense ratio, make this fund a likely underperformer over the long haul.
Fidelity Advisor Balanced FAIGX

While relatively new to this offering, manager Stephen Peterson is about as experienced as they come. Quite unusually for Fidelity, whose average manager tenure at a fund is around three years, Peterson has led identically managed sibling Fidelity Equity-Income FEQIX since 1993. To his credit, performance over that stretch has been remarkably consistent; in only two years—2008 and 2009—has Equity-Income ever finished in the large-value camp’s top or bottom quartile. There’s undoubtedly virtue in avoiding extremes, but the fund’s long-term record doesn’t stand out.
Fidelity Advisor Diversified International

Manager Chuck Myers joined Fidelity’s then-nascent small-cap team in 1999 and grew into a type of investor you don’t see too often at Fidelity. Myers employs a fairly concentrated, Buffett-esque strategy, setting him apart from his siblings. His distinctive style means he’s usually not buying the same stocks as other Fidelity small-cap funds, which makes his $2 billion load easier to manage. Admittedly, Myers’ tenure here has been brief (it stretches back to just 2008), but he has a bit longer track record at Fidelity Small Cap Discovery FSCRX, where he has delivered fine results since coming aboard in 2006.
Fidelity Advisor Municipal Income FAMUX

Advisor Dividend Growth’s gain was this fund’s loss. When Rakers left in 2008, Fidelity replaced him with its multimanager group, led by former Fidelity Magellan skipper Bob Stansky. Stansky keeps the portfolio’s sector exposure aligned with the S&P 500’s and delegates stock selection to eight sector specialists. The multimanager approach is a major departure from Fidelity’s single-manager approach and remains unproven.
Fidelity Advisor Dynamic Capital Appreciation

FDVAX

FARAX

Fidelity has built one of the very best municipal-bond operations in the business. Thanks to old-fashioned communication and cuttingedge analytical tools, its team can view the municipal-bond market through many lenses, giving the fund an edge over its rivals. Lead manager Jamie Pagliocco avoids big interest-rate bets and limits exposure to the muni arena’s racier provinces—an approach that helps greatly in volatile markets like 2008’s. The fund’s moderate tack holds it back in racier environments, but its long-term returns are superb.

Former manager Fergus Shiel’s adventuresome streak lent this fund a strategy that resembled its name. Shiel, who remains at Fidelity Capital Appreciation FDCAX, mixed large and small caps, value and growth stocks, domestic and foreign fare, and used both fundamental and technical analysis. But in March, Fidelity ditched Shiel’s approach for a far blander multimanager strategy, this time with sector specialists represented by a crew of Fidelity Select fund managers. Although the managers have some latitude to tweak the sector weightings, they probably won’t diverge much from their S&P 500 bogy. They’re a mostly experienced bunch, but it’s unclear how they’ll fare as a combined entity. What’s more, it’s tough to make a case for this fund when you can invest alongside Danoff or Rakers, who are expert users of Fidelity’s analyst research.

You could do much worse. Manager Bill Bower came aboard in early 2009, but he’s led sibling Fidelity Diversified International FDIVX since 2001. Bower employs a fairly eclectic, wide-ranging approach, diverging from his MSCI EAFE benchmark by investing meaningfully in emerging markets and with notably different country exposure. Bower’s long-term record is solid, but a big chunk of his success came earlier in his tenure at Diversified International, when he had a lot less in assets to manage. Performance has been more tepid in recent years. It’s a serviceable choice for core foreign exposure, but you could do better.
Fidelity Advisor Freedom Funds

Although Fidelity is one of the biggest and most-experienced players in the target-date arena, its Advisor Freedom lineup is hardly top rate. To be sure, the funds’ glide paths are thoughtfully conceived. They’ve also become better diversified, with recently bulked-up stakes in foreign stocks, commodities, and TIPS. The funds’ sprawling portfolios, however, are riddled with overlapping funds of mixed quality. Moreover, with merely average expenses, they have no cost advantage over the competition. K
Christopher Davis is a senior mutual fund analyst with Morningstar and editor of the monthly Morningstar newsletter Fidelity Fund Family Report.

24 Morningstar Advisor August/September 2010



Morningstar Advisor - August/September 2010

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2010

Morningstar Advisor - August/September 2010
Contents
New on MorningstarAdvisor.com
Contributors
Letter From the Editor
What Aspects of Health-Care Reform Will Most Affect Your Clients?
Bonds, Chicago Style
Investment Briefs
Which Risk Are You Managing?
Eye on the Prize
Advisors Can’t Rely on Fidelity Alone
Health Care Gets Back to Business
An Opportune Time to Bet the Pharm
Reform’s Impact on Other Health-Care Industries
Top Takeover Targets in Biotech
After Reform, Narrow-Moat Firms Have Strong Prospects in Diagnostics
Health-Care Investing Alive and Well
Quest for Knowledge
Four Picks for the Present
How to Make Your Bond Portfolio Inflation-Resistant
Weeding Through the Energy Patch
Uncertainty and Value in Basic Materials
Stock Market Doom-Busters
Hunting Down European Debt-Dodgers
Mutual Fund Analyst Picks
50 Most Popular Equity ETFs
Undervalued Stocks With Wide Moats
VA Sales Slip a Bit in First Quarter
New at Morningstar
Star Wars, the Sequel
Morningstar Advisor - August/September 2010 - Morningstar Advisor - August/September 2010
Morningstar Advisor - August/September 2010 - Cover2
Morningstar Advisor - August/September 2010 - 1
Morningstar Advisor - August/September 2010 - 2
Morningstar Advisor - August/September 2010 - Contents
Morningstar Advisor - August/September 2010 - 4
Morningstar Advisor - August/September 2010 - 5
Morningstar Advisor - August/September 2010 - New on MorningstarAdvisor.com
Morningstar Advisor - August/September 2010 - 7
Morningstar Advisor - August/September 2010 - Contributors
Morningstar Advisor - August/September 2010 - Letter From the Editor
Morningstar Advisor - August/September 2010 - What Aspects of Health-Care Reform Will Most Affect Your Clients?
Morningstar Advisor - August/September 2010 - 11
Morningstar Advisor - August/September 2010 - Bonds, Chicago Style
Morningstar Advisor - August/September 2010 - 13
Morningstar Advisor - August/September 2010 - Investment Briefs
Morningstar Advisor - August/September 2010 - 15
Morningstar Advisor - August/September 2010 - Which Risk Are You Managing?
Morningstar Advisor - August/September 2010 - 17
Morningstar Advisor - August/September 2010 - 18
Morningstar Advisor - August/September 2010 - Eye on the Prize
Morningstar Advisor - August/September 2010 - 20
Morningstar Advisor - August/September 2010 - 21
Morningstar Advisor - August/September 2010 - Advisors Can’t Rely on Fidelity Alone
Morningstar Advisor - August/September 2010 - 23
Morningstar Advisor - August/September 2010 - 24
Morningstar Advisor - August/September 2010 - 25
Morningstar Advisor - August/September 2010 - 26
Morningstar Advisor - August/September 2010 - Health Care Gets Back to Business
Morningstar Advisor - August/September 2010 - An Opportune Time to Bet the Pharm
Morningstar Advisor - August/September 2010 - 29
Morningstar Advisor - August/September 2010 - Reform’s Impact on Other Health-Care Industries
Morningstar Advisor - August/September 2010 - 31
Morningstar Advisor - August/September 2010 - 32
Morningstar Advisor - August/September 2010 - Top Takeover Targets in Biotech
Morningstar Advisor - August/September 2010 - 34
Morningstar Advisor - August/September 2010 - 35
Morningstar Advisor - August/September 2010 - After Reform, Narrow-Moat Firms Have Strong Prospects in Diagnostics
Morningstar Advisor - August/September 2010 - 37
Morningstar Advisor - August/September 2010 - 38
Morningstar Advisor - August/September 2010 - 39
Morningstar Advisor - August/September 2010 - 40
Morningstar Advisor - August/September 2010 - Health-Care Investing Alive and Well
Morningstar Advisor - August/September 2010 - 42
Morningstar Advisor - August/September 2010 - 43
Morningstar Advisor - August/September 2010 - 44
Morningstar Advisor - August/September 2010 - 45
Morningstar Advisor - August/September 2010 - 46
Morningstar Advisor - August/September 2010 - 47
Morningstar Advisor - August/September 2010 - 48
Morningstar Advisor - August/September 2010 - Quest for Knowledge
Morningstar Advisor - August/September 2010 - 50
Morningstar Advisor - August/September 2010 - 51
Morningstar Advisor - August/September 2010 - Four Picks for the Present
Morningstar Advisor - August/September 2010 - 53
Morningstar Advisor - August/September 2010 - How to Make Your Bond Portfolio Inflation-Resistant
Morningstar Advisor - August/September 2010 - 55
Morningstar Advisor - August/September 2010 - 56
Morningstar Advisor - August/September 2010 - 57
Morningstar Advisor - August/September 2010 - Weeding Through the Energy Patch
Morningstar Advisor - August/September 2010 - 59
Morningstar Advisor - August/September 2010 - 60
Morningstar Advisor - August/September 2010 - Uncertainty and Value in Basic Materials
Morningstar Advisor - August/September 2010 - 62
Morningstar Advisor - August/September 2010 - 63
Morningstar Advisor - August/September 2010 - Stock Market Doom-Busters
Morningstar Advisor - August/September 2010 - 65
Morningstar Advisor - August/September 2010 - Hunting Down European Debt-Dodgers
Morningstar Advisor - August/September 2010 - 67
Morningstar Advisor - August/September 2010 - Mutual Fund Analyst Picks
Morningstar Advisor - August/September 2010 - 69
Morningstar Advisor - August/September 2010 - 70
Morningstar Advisor - August/September 2010 - 71
Morningstar Advisor - August/September 2010 - 50 Most Popular Equity ETFs
Morningstar Advisor - August/September 2010 - 73
Morningstar Advisor - August/September 2010 - Undervalued Stocks With Wide Moats
Morningstar Advisor - August/September 2010 - 75
Morningstar Advisor - August/September 2010 - VA Sales Slip a Bit in First Quarter
Morningstar Advisor - August/September 2010 - 77
Morningstar Advisor - August/September 2010 - 78
Morningstar Advisor - August/September 2010 - New at Morningstar
Morningstar Advisor - August/September 2010 - Star Wars, the Sequel
Morningstar Advisor - August/September 2010 - Cover3
Morningstar Advisor - August/September 2010 - Cover4
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