FGDFX is a new fund that M* places in the large blend category. I have been "test driving" the fund in my 2020 Challenge Portfolio over at the M* Discussion Forum with very encouraging results. Comparing it to SPY over its short history shows an excellent risk/reward profile, however the mangers are unknown to me:
Total Return Max DD Sharpe Std Dev
FGDFX 25.8% -3.1% 3.0 16.0
SPY 13.4 -6.1 1.7 15.5
According to Fidelity, the fund's "disruptive strategies seek to identify innovative developments that could signal new directions for delivering products and services to customers. Generally, these companies have or are developing new or unconventional ways of doing business that could disrupt and displace incumbents over time. This may include creating, providing, or contributing to new or expanded business models, value networks, pricing, and delivery of products and services."
Normally, FGDFX invests in assets of five Fidelity funds that concentrate in the following areas, respectively:
I am considering using this rather intriguing new fund in my personal portfolio, perhaps up to a max. of 10%. Would appreciate comments or suggestions from investors in the fund, or others who may have followed or have knowledge of the fund.
Fidelity's prospectuses are typically vague, but this one more than usual. This is a fund of funds, but the prospectus doesn't make clear who is responsible for the asset allocations or even say anything about how they're done. I'll contrast it with the prospectus for FMRHX, another Fidelity fund of actively managed funds.
FMRHX: "The Adviser, under normal market conditions, will use an active asset allocation strategy to increase or decrease asset class exposures relative to the neutral asset allocations [previously specified] by up to 10%..."
FGDFX: silent. The only info I could find was in the SAI, where it says that "The fund may not purchase the securities of any issuer if, as a result, more than 25% of the fund's total assets would be invested in the securities of companies whose principal business activities are in the same industry." This doesn't really help understand the allocation among the underlying funds.
Investment Risks. Similar verbiage for both funds: "The fund is subject to risks resulting from the Adviser's asset allocation decisions." What decisions? By whom?
That gets us to the managers who are supposedly responsible for the asset allocation. It looks like Fidelity just threw the same eight managers at all the disruptor funds. Completely opaque as to who is steering which ship.
Is the ship being steered at all, or is it on autopilot? I looked at the latest monthly holding filing. That's a legal document, so it has to tell you what the fund is holding directly. That's different from Fidelity's sheet listing the securities it holds indirectly via the underlying funds.
The number of shares of the underlying funds are very similar. Given that the fund with the lowest value has the highest number of shares and so on down, the figures suggest that Fidelity is simply shooting for an even allocation (20%/fund) and periodically rebalancing. No asset allocation management, at least so far. This is a reason to wait - to see whether the fund really is on autopilot, or if it will change once it has more AUM.
As to the underlying holdings... Aside from the finance fund which is off in its own world, there's significant overlap among the underlying funds. Disregarding MasterCard (MA) and Capital One (COF) (which are in the finance fund), all of the other holdings in the top 15 are held by 2-3 of the underlying funds. Not unexpected, but it does call into question how much diversification you're getting.
Which brings us to the classification of this fund. I suspect M* classified it as LC Blend because it has to put new funds somewhere, and Fidelity didn't give any indication of how it would do asset allocation.
The underlying technology fund is 75% LCG. Communications is 53% LCG. Automation is 46% LCG. Medicine is slightly more LC blend (33%) than LCG (26%), but when you add in its MCG (23%) and SCG (4%), it's still a majority growth fund. Only Finance isn't a growth fund. But it's not the value fund one might expect, with only 22% invested in value, less than the 30% it has in growth stocks.
The fund as a whole is 45% LCG. Remember this is with a fairly neutral mix (finance currently constitutes 19.6% of the portfolio). So it seems fair to consider this a LCG fund, and those are the funds one might compare this with. Alternatively, one might compare it with some LCG global funds. This fund is 70/30 domestic/foreign. About 40% of the funds I could find with roughly this mix are world large stock (per M*).
Thanks, msf, for your thorough and very informative response. Much appreciated.
I had assumed, incorrectly, as it turns out, that Camille Carlstrom was the lead manager who was in charge of asset allocation and risk control across the portfolio of FGDFX. I now see that the fund is actually "team managed", whatever that means in terms of who has the final decision making responsibility. That's a game changer for me. Glad you pointed that out. Will be looking somewhere else to fill this niche in my portfolio.
Thanks, Mike, appreciate the suggestions. Will check them out.
M* puts the fund in the large blend category but classifies its investment style as large growth. It's current standard deviation, according to Portfolio Visualizer, is 18%.
However, as I said previously, I am still not comfortable with the fund's current management structure. In a "team managed" environment, who, for example, is in charge of asset allocation from among the five underlying funds? What about risk control across the portfolio of FGDFX? Who has the final decision making responsibility? Wish Fidelity would provide some clarity in the fund's prospectus.
For the time being, I am still sitting on the sidelines. If this intriguing new fund continues to do well in the future, I may well pull the trigger and "test drive" it to "see where it goes".
Prospectus: That's the complete description of how this fund operates in the statutory prospectus.
Just "a combination" of funds, not an equal combination.
To repeat what I wrote above: Fidelity's prospectuses are typically vague, but this one more than usual.
Perhaps with more diligent investigation you would discover that when a Fidelity fund "is meant to be [statically] allocated to the underlying funds", Fidelity says so. Compare and contrast with another Fidelity fund of funds, this one with a static target allocation:
You're right. I asked where your erroneous understanding came from. Apparently from thin air.
Fund May - Nov 3 Months 1 Month Std. Dev.
FGDFX 41.0% 15.4% 5.0% 18.0%
POLIX 30.4 8.0 0.5 19.1
TRBCX 31.7 8.4 1.3 19.2
TRLGX 34.4 12.5 3.5 19.6
VOOG 31.3 8.7 1.8 20.1
VIGRX 35.4 10.1 2.9 21.4
I have not drawn any final conclusions about this fund at this time, but I am still intrigued by it and will continue monitoring its risk/reward performance.
P.S. Sorry, but in "preview" mode the columns line up properly under their headings, but once I post my comment I get the not exactly user friendly display as seen above. What, if anything, am I doing wrong? Is there a way around this, or is it the nature of the beast?
In looking at comparable funds, you might also consider ANFFX. It might seem that I found this by looking for a fund with a similar objective: "Seeks growth by investing in companies that can benefit from innovation, exploit new technologies or provide products and services that meet the demands of an evolving global economy."
But I wasn't looking for this at all. I was simply looking to match allocations. FGDFX's equity is 70/30 domestic/foreign. ANFFX's is 75/25, with 46% large cap growth vs. FGDFX's 43%.
Where are you gettting six month standard deviation figures? It's a curiosity question. I roll my own using Yahoo's monthly adjusted closing prices, and get numbers that are similar but not identical to what you posted. You should find that ANFFX's standard deviation is about 10% lower than FGDFX's. Though I'm not convinced that just seven months worth of returns give one a meaningful standard deviation - it's too unstable; a single month can throw the figure way off.
I got the seven months standard deviation for FGDFX from Portfolio Visualizer.
I may have said it before, but your thoughtful comments along with the thorough research you provide is really very much appreciated. Thanks, again.
Using the above link, on pages 17 and 18 Fidelity explains the investment process and the portfolio construction parameters of their Disruptive Funds.
Apparently, the PMs meet monthly and on an ad hoc basis to review portfolios, and quarterly an unnamed CIO "challenges PMs on alignment with disruptive themes and overlap across funds".
It also states that FGDFX has "equal weight exposure to the five five Disruptive Funds".
Whatever may be their mindset for how they choose where to be positioned, one has to be impressed with ARK management. ARKG is running circles around similar funds/etfs in the same sector(s).
ADD: A bit of a different data view. Save the site if you choose and place whatever ticker for your viewing. Don't forget the "SEE MORE" clickables near the data info.
Stay warm. A short lived 50 degrees in parts of Michigan right now.
Trying to stay warm but a winter storm just kicked off about 30 minutes ago. It was about 35 degrees this am when I was out rescuing wholly bear caterpillars off my patio and placing them under a pile of leaves. Just in the nick of time judging by the forecasters and it looks like it's headed your way eventually. Happy Holidays!
Of course not. As early as the end of August, a mere four months since inception (4/16/20), the fund had veered substantially from equal weighting, weighting one underlying fund 1/5 more heavily than another.
So what exactly does "equal weight exposure" mean when appearing in promotional literature. Does it mean approximately equal, as in the prospectus I quoted above for another fund? Or is it merely a broad objective, a neutral position where management has significant discretion in setting actual targets?
The former describes traditional old style balanced funds and funds of funds like the example I gave previously. For those funds of funds, "the work to accomplish that [would be] deminimis". But for funds of the latter type, more modern asset allocation funds, there would be significant management risk. Some investors may not "understand [the] concern on the team [management] and allocation." That lack of understanding doesn't make the risk any less real.
Again I suggest contrasting prospectuses to understand this. The prospectus of that other fund doesn't include management as a risk factor. Understandable, since the fund must hew closely to its target allocations of underlying funds.
Contrast that with the prospectus of FMRHX, another Fidelity fund of funds. At any given moment in time, this fund has a "neutral allocation" (quoting the prospectus). But the fund's manager ("the Adviser") is given wide latitude in deviating from this target. Consequently, one of its "Principal Investment Risks" is Underscoring added. It should be clear that management for this fund matters.
So which type of fund does FGDFX more closely resemble? Its prospectus provides the answer (despite the fact that it also asserts that "The Adviser does not intend to trade actively among underlying Fidelity ® funds") : Underscoring added. What's different, and where the concern lies, is that while Fidelity assigns real managers to FMRHX to actually manage the fund, Fidelity merely names the underlying funds' managers for FGDRX. AFAIK it does this with no other fund of funds and thus appears to be using these manager names as placeholders to meet the letter of the law.
Bottom line: the glossy is a nice find, as it suggests the fund's neutral allocation. But it's promotional material and as such is allowed a measure of puffery. Such material is often "preceded or accompanied by a prospectus."