Fidelity Select Consumer Staples (FDFAX)

By Ian Wyatt, MutualsAdvisor.com | FDFAX | Jun 02, 2008 | comment

By Ian Wyatt, Editor-In-Chief

 Jason Cimpl, Research Analyst

 Ann C. Logue, Research Analyst

Fund Type: Large Blend

Expense Ratio: 0.91%

Sales Load: none

Yield TTM: 0.61%

Min. Investment: $2,500

Web: https://www.fidelity.com

Top 3 Holdings:

Procter & Gamble Co.

Coca Cola Co.

PepsiCo Inc.

If you’re up for a defensive allocation, Fidelity Select Consumer Staples may be the fund for you. Formerly named Fidelity Select Food and Agriculture, the fund focuses on companies engaged in the manufacture, sale or distribution of consumer staples.

While the fund isn’t a direct play on the agricultural commodities sector anymore, it is the closest you’re likely to get in a mutual fund. The fund holds many companies that produce food and other consumer goods as well as retailers that sell them to consumers. The fund’s biggest stakes in the consumer staples sector include beverages at 31%, household products at 19.7%, food and staples retailing at 17.4% and food products at 15.9%.

Manager Robert Lee focuses on three themes in his investing strategy: companies that benefit from sales to faster-growing sectors of the world, companies that woo consumers interested in trading up to higher quality brands and companies that have attractive stock market valuations. Lee cites Nestle and British American Tobacco as two stocks in the portfolio that meet all three criteria and that contributed positively to fund returns during the six months ending Feb. 29, 2008. On the downside, the fund’s performance was constrained by poor performance of its holdings in the restaurant and food technology sub-sectors, he noted in his report to fund shareholders on Feb. 29, 2008.

Fund total returns are attractive on a long-term basis, as the fund has outperformed its benchmark index, the MSCI US Investable Market Consumer Staples Index. For the most recent five-year average annual return period, the fund returned 16.88% versus 12.29% for the index. During the past three years, the fund returned 14.38% compared with 9.68% for the index, and for one year, 13.12% for the fund, 8.20% for the index.

When examining historic returns, keep in mind that when the fund changed its name on Oct. 1, 2006, it also changed its focus and compares its performance to a different benchmark. However, Lee has managed the fund through the change, as he came on board in June 2004 and continues to apply the same overall stock selection policies to the fund, although with a different sector focus.

More recently, fund performance suffered during the first three months of the year in tandem with the U.S. and global economies, as it was down 2.68% versus -2.54% for the index. Sector funds are generally more volatile on a quarterly and annual basis than funds with a more broadly based mandate. This fund is somewhat volatile, as it has had only two down years in the past seven years — in 2001 the fund had a -0.5% return, followed by a -6.7% return in 2002.

The fund’s best year was 2007 with a 21.5% return, followed by a 20.2% return in 2007, those notched when the fund was under its new mandate and benchmarked against its current MSCI US Investable Market Consumer Staples Index. Even on a quarterly basis, the fund is not overly volatile with the most volatile quarter coming in the fourth quarter of 2007 when it returned 14.20%; on the negative side, the third quarter of 2002 was the most volatile, when it notched a -13.69% return.

The fund lands in the large growth corner of Morningstar’s style box. So it’s no surprise that 92.13% of the companies held by the fund — 86 total — are large-caps with only 6.83% landing in the mid-cap category and 0.69% in the small-cap, with the remaining 0.35% sliver in the micro-cap category. The fund has shifted its style during the past several years, as Morningstar classified it in 2006 as a large-blend fund.

The fund is concentrated, holding more than half of its assets — 58.60% — in its top 10 holdings. In fact, 15.5% of the funds assets are concentrated in Procter and Gamble, its largest holding, 9.27% in Coco-Cola and 7.75% in PepsiCo. Foreign holdings represent 26.8% of the portfolio, with 6.3% of the assets invested in companies based in the United Kingdom, 4.6% in Switzerland and 3.9% in the Netherlands.

While Fidelity tends to move its Select funds managers around, Lee has been with this fund for four years. Previously, he managed Fidelity’s Advisor Consumer Discretionary Fund. He joined Fidelity as a research analyst in 2001.

The fund’s expense ratio is 0.91%, which compares favorably to fund data-tracker Lipper’s Specialty and Miscellaneous Fund’s average of 1.14%. The fund imposes a 0.75% redemption fee on fund shares held for 30 days or less.

 This article is from the report, "MutualAdvisors.com, Top 10 Mutual Funds from 2008." Click here for the latest report!

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