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This Sector Has Hurt the Fidelity Growth Company Fund so Far in 2016

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FDGRX: performance evaluation

The Fidelity Growth Company Fund (FDGRX) places ninth in the YTD (year-to-date) period among the group of 12 funds we’ve chosen for this review. However, the past six months have been very good for FDGRX. We’ve graphed below the fund’s performance against two ETFs: the iShares S&P 500 Growth ETF (IVW) and the iShares Russell 1000 Growth ETF (IWF).

Let’s look at what has contributed to this below average performance by the fund in 2016.

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Contribution to returns

The information technology sector has been an excellent performer so far in 2016 and has pulled the fund from the red, where it was three months ago, in our last review of the fund. NVIDIA (NVDA) stands head and shoulders above all the fund’s positively contributing stocks. The stock has nearly single-handedly powered the sector in 2016 so far. Meanwhile, Infinera (INFN) has led the detractors and has chipped away some of the overall positive contributions.

The consumer discretionary sector has also done very well for FDGRX this year. Amazon.com (AMZN) and adidas AG (ADDYY) have helped the sector, whereas Restoration Hardware Holdings (RH) Skechers USA (SKX), and Tesla Motors (TSLA) have dragged on the sector.

Any positive contributions, however, have nearly been wiped out by negative contributions from the healthcare sector. Alkermes (ALKS) has been the chief detractor, with help from Alnylam Pharmaceuticals (ALNY), Ionis Pharmaceuticals (IONS), and Regeneron Pharmaceuticals (REGN). Exelixis (EXEL) has been a rare (and small) positive contributor to the sector in 2016.

Investor takeaway

Healthcare is the only sector that has contributed negatively to FDGRX in 2016 until October 14. However, its quantum is extremely high—high enough to have almost erased the positive contributions from other sectors. All funds ranking lower than FDGRX are negative performers.

This high negative contribution has overshadowed the fund manager’s picks from the consumer discretionary and information technology sectors, which have performed excellently. If the healthcare sector were to be managed better, the fund would easily be an above average performer, if not a top ranker. Existing investors might consider staying on, given the fund’s low portfolio turnover and past performance show the ability of the fund manager to bounce back.

In the next part, we’ll move on to the next fund under review, the Franklin Growth Fund Class A (FKGRX).

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