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Performance Analysis and Risk Evaluation of the FLCSX Fund- Comparisons Recommendations and Morningstar Rating Assessment

Performance Analysis and Risk Evaluation of the FLCSX Fund- Comparisons Recommendations and Morningstar Rating Assessment

Fidelity Large Cap Stock Fund

Fidelity Mutual Fund is one of the largest stock investment companies in the US. The fund’s primary objective is to attain long-term market capitalization, and as a result, the fund focuses on companies with long-term market capitalization. Companies with long-term capitalization goals include those that fall under the Russell 1000 and S&P 500. The fund attracts both domestic and international issuers. Interested investors can choose either the ‘value’ option or ‘growth’ option or combine both. Many factors affect the fund’s performance, including the issuer’s and industry’s financial position, market conditions, and economic conditions to choose the most viable investment option.

One of the prominent advantages of investing in fidelity stocks is the fund’s exposure to large, competitive, and innovative companies. Stocks are not lottery tickets that can perform based on luck. If a company is doing well, its stocks will eventually perform regardless of the current status. With Fidelity focusing on some of the largest S&P 500, investors are almost assured of returns (Li, Tower & Zhang, 2019).

Fidelity fund also offers the most significant appreciation potential. The fund has SIGNIFICANT equity both in the US and in foreign markets. For instance, Fidelity manages $757 billion of equity assets in the US (Fidelity, n.d.). That amounts to about 960 stocks managed by 179 equity professionals (Fidelity, n.d.). Besides, the fund’s portfolio includes highly rated Morningstar-rated funds. All these factors combined are enough evidence that fidelity stocks hold a high appreciation potential.

One of the mutual funds that give the Fidelity fund competition is the Vanguard fund. Vanguard Fund has a lower tax cost compared to Fidelity. Mutual fund managers are never worried about tax implications as the investor’s taxable account takes care of tax efficiency. Nonetheless, the cost of taxes impacts before and after-tax returns. Based on the average return method, 18 of Vanguard’s funds have lower tax costs than Fidelity’s funds (Li, Tower & Zhang, 2019). As a result, Vanguard is more tax-efficient compared to the Fidelity fund.

Volatility Risks

According to McLaughlin & Dudley (2018), a strategic overhaul in 2014 at Fidelity mutual fund exposed it to more stocks. That includes investment in stocks from highly volatile environments in emerging economies. The fund also abandoned the long-held tendency to pre-set allocation of stocks and funds, thereby exposing itself to more volatility. Besides, regulatory filings show that Fidelity regularly withdraws money from losing commodities bets into the more volatile Chinese stock market and the US tech industry. These strategic changes have helped the fund grow and expose customers to more risky stocks as it heads south.

Moreover, the issue of lack of transparency props up when it comes to investment in foreign stocks. Most emerging economies and developed countries do not have similar reporting standards as the US (Fidelity, n.d). For instance, the Securities and Exchange Act of 1934 requires US companies to report their quarterly earnings and file proper documents with the body. However, that may not be the case in foreign markets where such reporting is not required. As a result, it is not easy to access accurate information about the financial position of the companies. The language barrier also limits access to such information.

Moreover, foreign markets are characterized by currency risks. If the currency of the foreign market appreciates against the US dollar, the value of the stock improves. On the other hand, depreciation of the local currency against the US dollar will render the stock worthless. In case of depreciation, fund managers may decide to cash out of the local currency, but that is not always possible since some countries restrict cash out of the local currency. Foreign currency volatility exposes investors to more losses.

While investing locally in the US is attractive, foreign markets help investors diversify their portfolios, balance risks, and exploit foreign opportunities. Fidelity fund managers help investors boost their portfolios by carefully selecting the most profitable stocks (Fidelity, n.d). One of the advantages of investing in foreign stocks by Fidelity is the lower price-to-earnings ratio in the markets (Fidelity, n.d). That means that these shares are undervalued; hence proper research will yield profitable buys. Another advantage is the growth potential in foreign markets. US markets have outperformed international markets over the past decade; thereby, Fidelity investors get more returns from international buys.

Morningstar Rating 

Morning Star rates two of Fidelity’s funds, Fidelity’s capital appreciation fund and Contrafund fund, as domestic large cap. These funds have previously reported smaller capitalization and international stocks. As a result, Morningstar reported that the funds fall in a different index outside the S&P 500 universe (Miller, 2007). However, their returns did not overshadow the S&P 500 standards; hence the funds fall under the S&P 500 universe. There is no other benchmark that better reflects their heterogeneous equity holdings better than the S&P 500.

The only large-cap Fidelity fund that overshadows the S&P 500 universe is the Fidelity blue-chip growth. The fund reported a benchmark performance of 98%, which is lower than most S&P 500 stocks (Miller, 2007). However, much of the fund’s underperformance is attributed to a high concentration on growth stocks, therefore failing to balance risks. That does not mean that the fund has essentially failed, but rather its over-concentration on investing in technology-oriented firms, resulting in a negligible effect on its performance.

Top Fund Holdings

Fidelity Asset Manager Funds are some of the most diversified Fidelity fund holdings. These funds can help the investor maintain their portfolio based on their low-risk tolerance. Asset manager funds expose the investor to multiple asset classes while maintaining their low-risk tolerance. Investors can invest in a wide portfolio, including domestic and international markets, and fixed long-term high-yield, and short-term investments. Fidelity enables investors to invest in conservative yield performance (20%) and aggressive high-risk performance (85%) (Fidelity, n.d.). Choosing between high-yield and low-yield options depends on one’s risk tolerance. The risk-intolerant can choose the low-yield option, but the stocks are limited to a short-term investment plan.

On the other hand, Fidelity Freedom Funds allow the investor to design their investments as they wish. These funds are perfect retirement plans as they allow the investor to set a target date, which is the retirement year (Fidelity, n.d.). It is not advisable to adjust asset allocations since the yield drops as retirement age nears. The option allows investors to put their money in a diversified portfolio, including domestic equity funds, international equity funds, and short-term funds.

References

Fidelity. (n.d.). International Stock Funds Ideas – Fidelity. Www.fidelity.com. Retrieved November 1, 2021, from https://www.fidelity.com/mutual-funds/investing-ideas/too-local-for-global

Li, C., Tower, E., & Zhang, R. (2019). Vanguard versus Fidelity: Multidimensional Comparison of the Index Funds and ETFs of the Two Largest Mutual Fund Families. Economic Research Initiatives at Duke (ERID) Working Paper, (283).

McLaughlin, T., & Dudley, R. (2018, March 5). Special Report: Fidelity puts 6 million savers on risky path to retirement. Reuters. https://www.reuters.com/article/us-funds-fidelity-retirement-special-rep-idUSKBN1GH1SI

Miller, R. M. (2007). Stansky’s Monster: A Critical Examination of Fidelity Magellan’s’Frankenfund’. Available at SSRN 964824.

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Question 


Review the investment information for the Fidelity® Large Cap Stock Fund.

Instructions
Write a 4–5 page paper in which you:

Assess the year-to-date performance of the FLCSX fund, including the key drivers of the fund performance, and how the performance of the fund compares to the S&P 500.
Evaluate the volatility risks in the fund, providing an assessment of the fund manager’s performance based on the risk measurements for the fund. Make a recommendation to the fund manager for improving the performance. Provide a rationale for your recommendation.

Performance Analysis and Risk Evaluation of the FLCSX Fund- Comparisons Recommendations and Morningstar Rating Assessment

Performance Analysis and Risk Evaluation of the FLCSX Fund- Comparisons Recommendations and Morningstar Rating Assessment

Compare your assessment of the fund performance to the Morningstar rating for the fund, indicating your agreement or disagreement with the rating. Provide support for your position.
Assess the top 10 holdings in the fund, indicating the level of diversification in the fund. Identify a company that may impose increased risk and any changes that you would recommend in the fund composition to improve the fund performance. Provide support for your rationale.
Use at least three quality academic resources in this assignment. Note: Wikipedia and other websites do not qualify as academic resources.

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