A Top Fidelity Manager's Other Fund

The search for a good mutual fund typically begins with finding a great manager. Take John Roth. Faithful Kiplinger readers may recognize him as the manager of Fidelity New Millennium (FMILX), a member of the Kiplinger 25, the list of our favorite no-load funds. But Roth also runs another fund, Fidelity Mid-Cap Stock (FMCSX).

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Although he leans toward large, growing companies, Roth is free to invest in companies of any size at New Millennium. With Mid-Cap Stock, he is more focused. He concentrates on growing companies with stock-market values of between $1 billion and $10 billion. He can stray a bit below or above those figures if he sees opportunity.

But no matter. Roth doesn't find the parameters a hindrance. "The midcap space is an awesome space to invest in," he says. "The companies are more stable in earnings and revenue growth than small companies, but they have bigger growth opportunities than large companies."

Of course, Roth has some flexibility at Mid-Cap Stock, too. He can load up on fast-growing stocks: He bought electric carmaker Tesla when it was just a $6 billion company (and sold when it topped $35 billion in market value). Some of the fund is devoted to stable growers, too, such as Gartner, a technology research firm. The fund also has nearly 10% of its assets in foreign stocks, including Italian clothier Brunello Cucinelli.

Roth's calling card is his eclectic approach to growth-stock investing, which stems from his unique experience at Fidelity. He joined the Boston-based firm in 1999 as an analyst and later managed several Fidelity funds that focused on sectors, including chemicals, utilities and media companies. The variety of industries allowed him to learn how to analyze established and emerging firms as well as companies in industries that experience boom-and-bust cycles and those that are filled with steady Eddies.

Over the years, this diverse experience has helped Roth become a nimble stock picker. Since he stepped in as Mid-Cap's manager in February 2011, the fund has clobbered the competition. From the day he took over the fund through July 10, it returned an annualized 14.7%, which beats the typical midsize-company fund by an average of nearly two percentage points per year. The fund beat Standard & Poor's MidCap 400-stock index of midsize companies by an average of 0.4 percentage point per year. (The S&P MidCap 400 is the fund's official benchmark.)

The fund, which holds 190 stocks, is more value-oriented today than it was a year ago. Roth shed most of his biotech companies by late 2013—ahead of the early 2014 dip in those stocks. And he unloaded some frothy software stocks, including Demandware, earlier this year, when he deemed them too pricey. He invested some of the proceeds in tobacco company Lorillard. The stock's then roughly $20 billion market value was outside Mid-Cap's normal range, but Roth was drawn to Lorillard's history of stable earnings and relatively cheap valuation. He also thought Lorillard stood a good chance of being acquired. Roth was unusually prescient. Reynolds American and Lorillard confirmed on July 11 that the former was negotiating to acquire the latter. Lorillard's stock was up sharply on the news. "The midcap space is a feeding ground for the megacaps," which have huge cash reserves, and Lorillard is the smallest of the major tobacco companies.