Better Know a Stock Picker

Welcome, Fools, to part 58 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.

Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?

Fidelity Leveraged Company Stock (FLVCX)

Expense ratio

0.85%

Fund size

$7.6 billion

1-year return

22.34%

5-year return

35.42%

10-year return

N/A

Source: Fidelity Investments. As of Aug. 31, 2007.

Top 5 stock holdings

Company

% of Assets

Teekay (NYSE:TK)

3.04%

Service Corp. International (NYSE:SCI)

2.95%

ON Semiconductor (NASDAQ:ONNN)

2.92%

Amkor Technology (NASDAQ:AMKR)

2.69%

Freeport-McMoRan (NYSE:FCX)

2.43%

Source: Morningstar. As of Apr.il30, 2007.

Meet Thomas Soviero
The fightin' team at Fidelity Leveraged Company Stock is led by manager Thomas Soviero, whose returns might make former Fido colleague Peter Lynch smile.

No joke. Fidelity Leveraged Company Stock is up 25.5% annually over the past three years and 30% since last summer. Lynch, by contrast, racked up 29% annualized gains during 13 years at the helm of Fidelity Magellan (FMAGX). Eat that, Wall Street.

And don't be surprised by the size of the feast. Soviero has blown away his category peers every year he's been on the job. (He took the reins of Leveraged Company Stock in July 2003.)

Wall Street's stockinistas are sure to point out that this fund's long-run record benefits from what might be the best single season in the history of stock picking: a 96% return in 2003. Maybe so, but, under Soviero, Leveraged Company Stock has produced positive double-digit returns every year. And he's not even on the juice. (Well, as far as we know.)

That's one of many reasons why Foolish colleague Shannon Zimmerman made Leveraged Company Stock a pick for the June issue of Motley Fool Champion Funds.

How he invests
Soviero gets his high from debt. That is, he uses leverage to maximize returns from his holdings. Almost anything is game. Quoting from the fund's marketing material:

Normally invests at least 80% of assets in common stocks of leveraged companies (companies that issue lower-quality debt and other companies with leveraged capital structures). The fund may invest in lower-quality debt securities. Invests in domestic and foreign issuers. Invests in either "growth" stocks or "value" stocks or both.

Um, Mr. Soviero? How about we just say you'll invest in anything that looks cheap?

Or maybe we should say: anything that produces enough cash flow to crush the market. "Cash flow is the name of the game," Soviero recently told The Wall Street Journal.

Few play the game better. Soviero knows it, too. He has more than $1 million of his own net worth invested in Leveraged Company Stock, reports the Journal.

Is this fund for you?
Still, there are two pretty big problems with Leveraged Company Stock. First, there's debt. It's a double-edge sword: It can enhance returns in times of low interest rates but cuts deeply when rates rise.

Soviero, for the record, has toed this line well in years past. His experience of successfully investing in both equities and debt instruments suggest he will continue to. Nevertheless, were credit markets to suffer a global meltdown, investors in Leveraged Company Stock would suffer steep losses. Buy this fund and a bottle of antacid.

Second, Leveraged Company Stock demands a $10,000 minimum investment. You're either with Soviero or you aren't. What's it going to be, Fool?

Can't decide? Hey, I don't blame you. Rest assured that, even if you're not ready to part with 10 grand, there are plenty of other options for the Foolish fund investor. You'll find many of the best in the Champion Funds portfolio. Nearly three-quarters of Shannon's picks are beating their respective benchmarks as of this writing. Intrigued? Accept a 30-day free pass to the service.

And till next time, fund nation, good night.

For more Foolish coverage of Fido funds:


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 537662, ~/Articles/ArticleHandler.aspx, 7/23/2014 4:54:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement