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Fidelity® Growth Company Fund

  • Symbol: FDGRX
  • No Transaction Fee No Transaction Fee 1
  • Closed to new investors
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    NEW - Print-friendly Monthly Fact Sheets are now available for all Fidelity Funds! Click on "Generate Monthly Fact Sheet" at the top of this page.NEW - Print-friendly Monthly Fact Sheets are now available for all Fidelity Funds! Click on "Generate Monthly Fact Sheet" at the top of this page.
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Fidelity Growth Company Fund: Quarterly Fund Review
DECEMBER 31, 2015
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Investment Approach

  • Fidelity® Growth Company Fund is a diversified domestic equity strategy that invests across a spectrum of companies, from blue chip to aggressive growth.
  • Our investment approach is anchored by the philosophy that the market often underestimates the duration of a company's growth, particularly in cases where the resiliency and extensibility of the business model are underappreciated.
  • We focus on firms operating in well-positioned industries and niches that we believe are capable of delivering persistent sales and earnings growth.
  • This approach typically leads us to companies that we think have the potential to unlock shareholder value through either a growth-enhancing product cycle or an internal catalyst such as a turnaround or acquisition.
  • We believe it critical that companies fund their own growth – through the cash they generate – and benefit from management teams focused on creating long-term shareholder value.

Performance Review

The fund's share classes outperformed the benchmark Russell 3000® Growth Index for the three months ending December 31, 2015. Versus the benchmark, stock selection drove the fund's outperformance, with sector allocation also turning up positive. Specifically, picks in information technology and the health care sector's pharmaceuticals, biotechnology & life sciences group helped the most.

Looking at individual stocks, the fund's biggest contributor was an out-of-index stake in NVIDIA, a semiconductor maker that benefited from exposure to the 2015 video-game console cycle. We liked the firm's diversified business and remained optimistic about its long-term growth prospects, to include prospects in areas such as "machine learning," which may one day inform the technologies behind driverless cars and similar innovations. The stock rose steadily during the quarter, including roughly a 14% pop in November when the firm reported much better-than-anticipated financial results.

In the pharma and biotech category, we seek companies selling breakthrough drugs, such as firms that specialize in treating unmet medical needs and fatal diseases or in areas where existing therapies have some shortcomings. We also look for firms with a strong product pipeline that we think should help support long-term growth potential. This quarter, several names from the industry that fit our investment thesis outperformed, including Alkermes, which produces drugs to treat diseases of the central nervous system. The stock's performance this period including a jump in December after the firm announced new developments and milestones related to its proprietary product, as well as its late-stage pipeline drugs.

The fund's overweighting in single-serve coffee giant Keurig Green Mountain also lifted relative performance. We continued to like the company's growth prospects associated with its new brewer platform, even though we realized the firm's transition from the old to the new platform was more difficult than we originally estimated. Keurig shares rose about 73% for the quarter, surging in early December on news it would be taken private in a $13.9 billion takeover by investment company JAB Holding, which already owns coffee chains Caribou Coffee and Peet's Coffee & Tea. The deal valued Keurig at $92 a share, or roughly a 78% premium from where it last traded. Prior to the deal, Keurig had faced sales difficulties largely tied to poorly received launches of new beverage systems.

On the flip side, picks in consumer discretionary hurt relative performance. From this sector, an overweighting in Skechers USA was the fund's largest relative detractor for the quarter, after giving back some gains from the first nine months of the year. We thought this maker of casual athletic footwear had a strong product lineup and was well-positioned in its market. Unfortunately for the fund, the stock plunged in October after the firm announced lower-than-expected quarterly comparable sales and revenue. The announcement sent Skechers' shares down 32% in one day.

While our picks in pharma and biotech were positive overall, a few names from this category didn't pan out the past quarter, including an overweighting in Chimerix and an out-of-index stake in Canada-based Valeant Pharmaceuticals International – two names that fit our investment profile. Chimerix specializes in antiviral drugs to protect immune-compromised patients from potentially lethal virus. The stock fell sharply in December after the firm reported that a key prospect failed a Phase 3 trial.

Valeant shares returned -43% for the period amid allegations of potential accounting irregularities and a U.S. investigation into the firm's drug pricing, as well as programs run by the company to help patients afford its drugs. The stock gained strongly off its November lows after announcing a new product distribution agreement with drug store chain Walgreens. However, shares tailed off late in the period because CEO Michael Pearson took a medical leave of absence due to severe pneumonia, naming a team of executives to temporarily run the company in his stead.

LARGEST CONTRIBUTORS VS. BENCHMARK
Holding Market Segment Average Relative Weight Relative Contribution (basis points)*
NVIDIA Corp. Information Technology 2.80% 68
Keurig Green Mountain, Inc. Consumer Staples 0.77% 48
Alkermes PLC Health Care 1.69% 43
Alphabet, Inc. Class A Information Technology 2.15% 40
Isis Pharmaceuticals, Inc. Health Care 1.05% 40
* 1 basis point = 0.01%.
LARGEST DETRACTORS VS. BENCHMARK
Holding Market Segment Average Relative Weight Relative Contribution (basis points)*
Skechers U.S.A., Inc. Class A (sub. vtg.) Consumer Discretionary 0.79% -45
Chimerix, Inc. Health Care 0.22% -21
Valeant Pharmaceuticals International, Inc. (Canada) Health Care 0.20% -19
bluebird bio, Inc. Health Care 0.42% -16
JetBlue Airways Corp. Industrials 0.69% -15
* 1 basis point = 0.01%.

Outlook and Positioning

Looking around the market at quarter end, we remain optimistic, as we still see potential opportunity among firms we believe are showing progress toward growth, regardless of conditional macro factors. Also, we've been giving close examination to the fund's current holdings, taking a realistic approach to analyzing the prospects of each individual company. We'll continue to prune stocks of those firms whose business prospects have not blossomed against a good economic backdrop, since we believe they are less likely to flourish when the economy slows.

Three sectors continued to make up roughly three-quarters of the portfolio during the fourth quarter: information technology, health care and consumer discretionary. Despite its large allocation, the fund's consumer discretionary weighting still registers below-benchmark. A big portion of the underweighting was in traditional media, as we preferred to invest in newer-media names, Internet leaders that happen to be classified in the technology sector.

We believe newer-media companies provide better-targeted ads and are growing much faster than traditional media. Specific to the consumer discretionary sector, major fund holdings included restaurants that we thought have unit sales growth in front of them, hospitality companies with international growth prospects, focused omni-channel retailers and leaders in online retail.

Within tech, we continue to be interested in what we consider "best in class" paid-search and social-media companies that provide attractive services, can grow their usage and deliver their advertisements in a targeted way. To that end, Facebook, Amazon and Alphabet were among the fund's largest holdings – and also were big relative contributors the past quarter. Each of these firms has made strides to enhance core offerings and/or has produced a disruptive technology that became a catalyst for growth. Social-media giant Facebook continued to grow its core business, partly by enhancing its messaging and video capabilities. In addition, Facebook began to monetize Instagram – its online mobile photo and video sharing application – and unveiled Oculus Rift, a headset with virtual-reality capabilities.

Meanwhile, e-commerce stalwart Amazon leveraged its distribution centers to enhance and expand its goods business. Additionally, its cloud-computing arm, Amazon Web Services, proved extremely profitable, giving investors more reason to be bullish on the firm.

Search giant Alphabet showed positive signs with its mobile transition and created a new operating structure to highlight its investments. The firm also showed better cost management.

While the future remains uncertain, we're optimistic that the continued good execution of these firms should result in continued growth.

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Morningstar Category: Large Growth
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