Essay On Finance - Fidelity Large Cap Stock (FLCSX Fund)
Fidelity Large Cap Stock (FLCSX Fund)
Fidelity Large Cap Stock (FLCSX fund) is a mutual fund managed by Fidelity Investment. It targets investors who are keen on long-term growth of their capital. At least 80% of the fund portfolio is invested in common stocks of companies with large market capitalizations such as those or similar to companies in the Russell 1000® Index or the S&P 500® Index. The stocks coming from either domestic or foreign issuers are selected based on their prospects for "growth" or "value", or both. Fund managers use fundamental analysis of each holding’s financial condition, market/industry position, overall business and economic conditions in which it operates (Yahoo, 2015).
The following sections provide an analysis of the fund’s performance year-to-date and prior year(s), potential risk for investors, and the fund’s top ten holdings as key determinants of earnings prospects.
Quarter-End Average Annual Total Returns
AS OF 3/31/2015; FUND INCEPTION 6/22/1995 / Source: FMR LLC (2015)EXPENSE RATIO (GROSS): 0.88% AS OF 6/28/2014
The preceding table shows FLCSX fund’s performance in terms of its returns within the last year, 3 years, 5 years, 10 years and the fund’s life, i.e. since its inception on June 22nd 1995. Over its life, the fund’s average return is about 8.56%. Compared to S&P 500’s returns of 8.94% in the same period, FLCSX performed lower. Its track record improves however, comparing the 10-year period given the fund’s 9.37% return vs. 8.01% for S&P 500. Its returns continue to be higher than S&P 500 index up to the 3-year time with 17.40% vs. the latter’s 16.11%. But it dropped significantly in the past year to 8.43% vs. S&P 500’s at 12.73%.
Reports by Fidelity Investments attributed FLCSX underperformance vs. S&P 500 Index in the past year to its position in the energy, health care and financial sectors. The fund had fairly large proportion of holdings in energy which was adversely affected by falling oil prices. These stocks include Suncor Energy, Canada's largest energy firm, and BG Group, U.K.-based large-cap exploration & production firm (Fidelity Investments, 2015). Both these stocks declined drastically during the period when crude oil prices started stumbling down in November as the Organization of the Petroleum Exporting Countries (OPEC) declared it will maintain current production levels in an overstocked market. Rather than withdrawing its position in both stocks, Fidelity opted to continue to buy in anticipation of the oil price bouncing back in the future. It is believed that both firms have solid balance sheets and management teams that could weather the temporary setback in oil prices (Fidelity Investments, 2015).
Another stock that led to the fund’s subpar returns was the higher risk taken by Fidelity in Intercept Pharmaceuticals, a biotechnology firm. These shares slid in the fourth quarter when a reliable medical journal questioned the company's credibility of meeting its goals of treating nonalcoholic steatohepatitis. Nevertheless, FLCSX fund managers remained bullish on this stock for its future demand prospects. Meanwhile, positions on financial sectors, primarily banks, performed below average given the sector’s slow recovery from the 2008 financial crisis (Fidelity Investments, 2015).
Despite this, Yahoo Finance notes that FLCSX still has Morningstar’s rating of 5star (Yahoo, 2015). Morningstar’s rating provides an indication of the risk-adjusted performance of a fund compared to its peers within its category. If the fund falls within the top 10% of its category, it gets five stars (High). If it ranks in the next 22.5%, it receives four stars or Above Average rating. A position in the middle 35% merits three star rating indicating Neutral or Average, while those in the next 22.5% receive two stars or Below Average. The lowest 10% only get one star which is the lowest rating (Morningstar, Inc., 2015).
As of March 31, 2015, FLCSX is determined to have a Beta of 1.13 (Fidelity Investments, 2015). Beta is a measure of a portfolio's sensitivity relative to market changes. Given a benchmark index of 1.0, a beta that is greater or less than 1.0 indicates that a fund's historical returns have fluctuated more or less than the market. Beta is considered a reliable indicator of volatility when combined with a high R2, which point to a high correlation between the movements in a fund's returns and movements in a benchmark index (Stanyer, 2014).
As for R2 measure, Fidelity assessed FLCSX with a 0.93. As an indicator of how the portfolio's performance correlates with the performance of the fund's primary benchmark index or equivalent, R2 measure ranges between 0.00 and 1.00. An R2 of 1.00 implies perfect correlation to the benchmark index, which means that the portfolio's fluctuations are all attributable to the fluctuations of the index, i.e., the market. On the other hand, an R2 of 0.00 indicates no correlation. Thus, the lower the R2, the greater the fund's performance is affected by factors other than the market (Fidelity Investments, 2015).
With these measures of volatility or risk of the fund, FLCSX may be considered of moderate risk. This implies that its performance may be impacted by changes in the market conditions.
The table below shows FLCSX fund’s top ten positions, which is evident of the large cap company shares it focuses on. These stocks account for 24.58% of the fund’s holdings, which comprise of 200 diversified assets and stocks from various market sectors and regions (Fidelity Investments, 2015).
Filing Date: 02/28/2015/ Source: Bloomberg, L.P. (2015)/ * Yahoo, 2015
Of these stocks, Apple which is the top 2 holding of the fund has been driving its growth with the highest ROE at 35.15%. This is followed by shares in technology companies such as Microsoft (23.26%-ROE), Comcast (16.19%-ROE), and Cisco (15.21%-ROE). Meanwhile, Target was identified to have outperformed and contributed mainly to the fund’s growth in the past quarter and the full calendar year. Target shares recorded a 22% gain in the quarter signaling a recovery from last year's data breach issue and problems with its expansion in Canada. Sales and customer traffic in this U.S.-based retailer improved and is believed to continue to grow better that its market valuation (Fidelity Investments, 2015).
Given the fund’s performance and its relative risk, this may be considered as a “Buy” recommendation in the long term. In the short-term however, given its underperformance relative to S&P, and investment in the latter’s index may be more beneficial.
Bloomberg L.P. (2015). Fidelity Large Cap Stock (FLCSX:US). Retrieved from
Fidelity Investments (2015). Fidelity Large Cap Stock. Retrieved from
Morningstar, Inc. (2015). Fidelity Large Cap Stock (FLCSX). Retrieved from
Stanyer, P (Mar 2014). Guide to Investment Strategy. 3rd Edition. The Economist
Yahoo! (2015). Fidelity Large Cap Stock (FLCSX). Retrieved from