Download Fidelity Value (FDVLX)

John Shelson
Robert Lake
Finance 321
Prof. Diana Sandberg
Mutual Fund Evaluation
AMAGX, FDVLX, VQNPX
December 5th, 2007
Vanguard Growth and Income (VQNPX)*
Vanguard’s Growth and Income Fund Investor’s Shares (VQNPX) is a large cap equity
income fund with moderate risk exposure in diversified industries and sectors. The fund has been
managed by John S. Cone of Franklin Portfolio Associates, LLC since 1999. Franklin Portfolio
Associates had advised Vanguard Growth and Income Fund Investor Shares since 1986. This
fund has been fairly more volatile than its income blend rating would suggest by experiencing
double-digit growth and loss in seven of the last ten years. In 1997, the best year for the fund, it
returned 33.48%, while its worst year was experienced in 2002 with a return of -22.87 %.
This large cap growth fund is currently benchmarked against the S&P 500, an index that
shares many of the same risk/return qualities including common holdings within the fund. For
the past three years, the fund has had an average return of 12.69%, while the S&P had an average
return of 13.14%. Over the past five years, VQNPX just narrowly missed beating the index. The
fund had an average return of 15.00% while the S&P returned 15.45%. As stated before, the fund
contains many of the larger companies listed in the S&P500. This would account for the
similarity of the 3-year and 5-year return averages. Returns, in fact, have been within 1
percentage point of the index for four of the past five years. The ten largest holdings for this fund
are in order from largest to smallest:
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General Electric Co.
ExxonMobil Corp.
Apple Inc.
Citigroup Inc.
American International Group Inc.
Johnson & Johnson
The Proctor & Gamble Co.
QUALCOMM Inc.
International Business Machines Corp.
Lockheed Martin Corp.
*Please note that all statistics used are borrowed from Yahoo! Finance as cited on the source page
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As seen from above, the fund is diversified in its industry and sector allocation. Roughly
10-15% for each of consumer discretionary, consumer staples, energy, financials, health care,
industrials, and information technology.
Table 1-1
Equity Holdings
3%
2%
4%
10%
Consumer Discretionary
Consumer Staples
10%
Energy
16%
Financials
Health Care
13%
Industrials
Information T echnology
12%
Materials
T elecommunications
13%
17%
Utilities
The current Morningstar Financial rating for this fund is 3-stars. The 3-year Sharpe ratio
is .94 while the 5 year is 1.08 suggesting a slight downward trend, although management has not
changed during this time. It is likely the risk has been reduced due to a slight reallocation of
holdings within the fund such as an increase in energy and a decrease in financials.
This fund, like all others, is subject to a number of expenses. First, an expense ratio of
0.32% is required. This is well below the average large blend fund average of 1.12%. Second, a
$20 annual account service fee is required per fund. Funds with balances of over $10,000.00 are
exempt while investors with accounts with balances greater than $100,000.00 are exempt from
this fee. This fee varies slightly in dollar amount between non-retirement accounts to SIMPLE
IRAs to (403)(b)(7) plans.
*Please note that all statistics used are borrowed from Yahoo! Finance as cited on the source page
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We chose this fund because we feel it returns consistently with the S&P 500. We very
much enjoy how it is structured to mirror or even beat the S&P500. Also, with a beta of roughly
1.0 and good diversification into sectors we prefer, we feel this fund is hedged against the
volatility of the U.S. economy of today. Several well branded and consistent dividend issuing
companies are listed in the top ten holdings. We like General Electric, Johnson & Johnson, as
well as Lockheed Martin. However, the fund’s large exposure to financials, including Citigroup,
is something of major concern.
Amana Growth Fund (AMAGX)*
The second fund our group chose to evaluate is the from the fund family of Amana
Mutual Funds Trust. The Amana Growth Fund trades with the symbol AMAGX and uses an all
equity investment style consisting of large market capitalization with a focus in high growth. We
chose this fund because it is very unique and invests only according to Islamic principles, as well
has shown tremendous growth over the past 10 years. The Morningstar rating is also five stars
for the past three and five year period. The investment strategy this fund utilizes poses an extra
challenge to the already difficult task of composing a portfolio due to the nature in which the
fund avoids investment in businesses such as liquor, wine, casinos, pornography, insurance,
gambling, pork processing, and interest-based financial institutions, including banks (Yahoo,
AMAGX 2007). However, with the current sub-prime mortgage debacle, credit-crunch, and
financial turmoil, the avoidance of banks has actually left the fund somewhat unexposed to the
risk in defaulting mortgages. We feel this is one of the most appealing aspects as a young
investor in today’s economy. This fund is also attractive and has growth potential because it
complies with Islamic principles, which makes it appealing relative to emerging markets such as
the United Arab Emirates. Recently, the government of Abu Dhabi injected $7.5 billion of
*Please note that all statistics used are borrowed from Yahoo! Finance as cited on the source page
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liquidity into Citigroup for a 4.9% stake in one of the largest American financial institutions
(Altman, 2007). This fund would appeal to young investors due to the low minimum investment
of $250 as well as the high growth rate. Young investors would also have a substantial time
period to recoup any losses, shall they occur. The top ten holdings of AMAGX are listed below,
which compose 19.71% of total assets.
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Apple Inc
Potash Corp of Saskatchewan
China Mobile Limited
Anglo-American plc
Rio Tinto plc
Manitowoc
Canadian Pacific Railway Ltd
Humana Inc
Trimble Navigation
International Business Machines
Nicholas Kaiser, CFA is the lead manager of this fund and has been actively managing its
assets worth $634.3 million since the fund’s inception in 1994. Mr. Kaiser managed the fund’s
best performing year in 1999 which returned an impressive 99.88%. However, in 2002, the
Amana Growth Fund’s return was -25.17%. These returns show that the fund does have
moderate risk exposure and the returns are volatile from year to year. The negative growth rate
is not inconsistent with the market at that time. However, as an investor in this fund, one would
have suffered a substantial loss. AMAGX has had significantly higher returns then its Russell
2000 benchmark in the 1, 3, 5, and 10 year return. The three year return is almost 8% higher
than its index and the five year return is 9% higher than the Russell 2000. The net asset value
(NAV) as of December 4th, 2008 was $23.24 with a YTD return of 18%. Using the sharpe ratio,
which measures the excess return gained for every unit of risk, to gauge Mr. Kaiser’s ability to
manage excess return and risk, yields a 3 year sharpe ratio of 1.59 and a 5 year sharpe ratio of
1.69. Using this ratio to compare other funds and managers, Mr. Kaiser is above average. The
*Please note that all statistics used are borrowed from Yahoo! Finance as cited on the source page
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Fidelity Contra Fund (FCNTX), which also has a 3 and 5 year five-star Morningstar rating and
similar investment strategy, has a 3 and 5 year sharpe ratio of 1.57 and 1.59.
As stated above, the Amana Growth Fund avoids the banking and financial industry due
to its incompatibility with Islamic principles. Instead, AMAGX invests heavily in the medical
industry and computer hardware industry. Stocks compose 86.75% of the AMAGX portfolio
supplemented with 13.25% cash investments. The Amana Growth Fund also carries expenses in
the form of 12b-1 fees at a rate of .25%. There are no front-end load or back end-load fees. The
total expense ratio is 1.35%.
Please see the graph below for complete breakdown of industry
allocation.
Table 2-1
Fidelity Value (FDVLX)*
The Fidelity Value (FDVLX) fund is a low-risk conservative mutual fund that invests in
holdings that management believes is undervalued in the market. This fund is a mid-cap value
fund and has been managed by Richard B. Fentin since 1996. Over the past five years, this fund
has experienced very positive net gains with a whopping return of 16.56%. The fund’s worst
*Please note that all statistics used are borrowed from Yahoo! Finance as cited on the source page
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year came in 2002 with a return of -9.25 %. Offsetting this negative return is the fund’s best year
in 2003 with a 34.43% return. FDVLX has had a 3-year average return and 5-year average
returns of 12.1% and 16.56% respectively. The 3-year exceeds the Russell 2000 of 11.93%, the
funds benchmark, but the 5-year falls slightly short of 17.62%. The top ten holdings of the
Fidelity Value Fund compose 10.9% of total assets and are listed below:
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National-Oilwell Varco Inc
Owens Illionios Inc
Xerox Corp
AT&T Inc
Fluor Corp
Avon Products Inc
Agilent Technologies Inc
Smith International Inc
Eastman Kodak Co
FMC Technologies Inc
FDLVX is four-star rated fund according to Morningstar and invests in diversified
industries ranging from software and utility companies to financial institutions. The majority of
the portfolio, 99.23%, is composed of stock. There is very little exposure to cash, bonds, and
other instruments This fund has a heavy emphasis in financials (about 13.68%), which contrasts
the AMANA fund evaluated above and exposes FDLVX to a high risk relative to the sub-prime
mortgage and current financial crises. Many funds in the mid-capvalue category invest in
financials and the exposure seems to be relatively consistent. However, Mr. Fentin’s ability to
manage excess return with regard to risk exposure has yielded a three and five year sharpe ratio
of 1.27 and 1.46. As the sharpe ratio suggests, the five year ratio is somewhat higher as this fund
is designed to be held for the long term, which is consistent with the five year higher return of
16.56% compared to the three year. The performance of this fund is consistent with the market
and other funds with similar investment strategies. Using the sharpe ratio to gauge the
*Please note that all statistics used are borrowed from Yahoo! Finance as cited on the source page
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performance of Mr. Fentin, he neither siginificantly outperforms the market or falls behind, but
seems to be consistent with his approach and sector allocation.
Table 3-1
Industry Allocation
16
14
Percentage
12
10
8
Series1
6
4
2
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Industry
We chose this fund due to the past performance. Richard B. Fentin has proven his ability
to handle risk and maximizing return. The fact that the fund has performed so well in the
extremely volatile past ten years was enough to convince us that this fund was a good choice. Of
course, we also like the allocation. We also enjoy the low fees this fund has to offer. The total
expense ratio of .66% is well below the industry average of 1.37%. Owning this fund appears to
be significantly cheaper than owning similar mid cap funds. This is a recurring theme for
Fidelity, which may be why this fund is attractive to young or beginner investors. Energy,
technology, and communications have been strong points for the U.S. economy and the future
predicts that this trend will continue.
*Please note that all statistics used are borrowed from Yahoo! Finance as cited on the source page
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Sources
Vanguard. “Vanguard Growth and Income Fund Investor Shares (VQNPX).”
www.Vanguard.com. 2007. The Vanguard Group, Inc.
https://personal.vanguard.com/VGApp/hnw/funds/snapshot?FundId=0093&FundIntExt=INT
Saturna. “Amana Mutual Funds Trust.”
www.amanafunds.com. 2006 Saturna Capital Corporation
http://www.amanafunds.com/
http://www.amanafunds.com/amagx.html
Fidelity. “Fidelity Value Fund (FDVLX).”
Fidelity.com. 1998-2007 FMR LLC.
http://personal.fidelity.com/products/funds/mfl_frame.shtml?316464106
Yahoo. “Vanguard Growth and Income (VQNPX).”
www.Yahoo.com. 2007. Yahoo!
http://finance.yahoo.com/q?s=VQNPX
Yahoo. “Amana Trust Growth (AMAGX).”
www.Yahoo.com. 2007. Yahoo!
http://finance.yahoo.com/q?d=t&s=AMAGX
Please refer to fact sheet.pdf
Yahoo. “Fidelity Value (FDVLX)”.
www.Yahoo.com. 2007 Yahoo!
http://finance.yahoo.com/q?d=t&s=FDVLX
Altman, Joseph. “Citi Sells Stake to Abu Dhabi Fund”. Yahoo. 3 December 2007.
http://biz.yahoo.com/ap/071126/citigroup_abu_dhabi.html
*Please note that all statistics used are borrowed from Yahoo! Finance as cited on the source page
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