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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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  • Quarterly Fund Review
Fidelity Growth Company Fund: Quarterly Fund Review
MARCH 31, 2015
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Investment Approach

  • Fidelity® Growth Company Fund 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 find 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

For the three months ending March 31, 2015, Fidelity® Growth Company Fund outpaced its benchmark, the Russell 3000® Growth Index. Successful stock selection within the information technology sector and in health care's pharmaceuticals, biotechnology & life sciences industry - areas where the fund was concentrated and where we have found many of our best ideas - proved major sources of strength the past quarter.

Within technology, a large, long-standing overweighting in enterprise cloud-computing services provider salesforce.com was the fund's biggest individual contributor and one of its largest holdings. We're attracted to areas of tech where companies have the potential to establish themselves as a new platform, such as software-as-a-service (SaaS), which tends to lead to favorable business models and strong profitability. Shares of salesforce.com rose to a record high in February after the firm reported better-than-expected fourth-quarter financial results, including a boom in sales and revenues. The company also raised its revenue guidance for the full fiscal 2016.

Several biotech and specialty pharma names landed among the fund's top performers, including Hospira, an out-of-benchmark maker of generic injectable drugs and biosimilars. The stock jumped in February after global biopharmaceutical giant Pfizer announced it would acquire Hospira for $17 billion to expand its drug portfolio. We sold Hospira to take profits shortly thereafter.

Elsewhere, the fund's overweighting in Monster Beverage was another winner. Monster Beverage saw its shares pop 28% for the three-month period, surging on fourth-quarter earnings results that topped analysts' expectations. Investors bought up the stock, impressed with ongoing growth in the firm's core energy-drink business, both in the U.S. and overseas, along with a pending deal to sell 17% of the company to Coca-Cola in exchange for access to Coca-Cola's bottlers, global distribution network and energy-drink portfolio.

On the negative side, our overweighting in Keurig Green Mountain was the fund's biggest individual detractor this quarter. Keurig shares fell 15% for the quarter after the maker of at-home beverage-brewing machines and accessories reported lower-than-expected fourth-quarter earnings and revenue in January, and gave a disappointing profit outlook. The company blamed slower holiday sales, a voluntary recall of one of its brewer models and retailer inventory reductions. While the stock's performance was disappointing this quarter, we held on to it. On top of the growth prospects associated with adding cold beverages to Keurig's already impressive business, we thought the partnership deals validated the strength of Keurig's products and management team.

A heavier-than-benchmark stake in long-time fund holding Lumber Liquidators also proved detrimental this quarter. Shares of the hardwood-flooring retailer plunged in February after the firm announced fourth-quarter sales and earnings results that fell short of Wall Street's expectations. The stock continued to take a beating during the quarter, as the firm revealed it may face criminal charges from the U.S. Department of Justice on the importation of some of its flooring products. Additionally, in March, TV program 60 Minutes ran a damaging segment accusing the company of selling laminate flooring containing levels of formaldehyde higher than state standards permit. Lumber Liquidators claimed the program used improper testing methods to make its conclusion and subsequently offered customers free formaldehyde testing kits. Despite the firm's woes, its March sales data came in better than feared, and customer order cancellations during the same month improved. While we intend to keep close watch on how these events unfold, we did not move the fund's position in Lumber Liquidators during the quarter.

LARGEST CONTRIBUTORS VS. BENCHMARK
Holding Market Segment Average Relative Weight Relative Contribution (basis points)*
salesforce.com, Inc. Information Technology 3.58% 30
Hospira, Inc. Health Care 0.30% 27
Monster Beverage Corp. Consumer Staples 1.05% 22
NPS Pharmaceuticals, Inc. Health Care 0.07% 18
First Solar, Inc. Information Technology 0.62% 17
* 1 basis point = 0.01%.
LARGEST DETRACTORS VS. BENCHMARK
Holding Market Segment Average Relative Weight Relative Contribution (basis points)*
Keurig Green Mountain, Inc. Consumer Staples 1.12% -23
Lumber Liquidators Holdings, Inc. Consumer Discretionary 0.22% -16
Alexion Pharmaceuticals, Inc. Health Care 1.03% -11
Insulet Corp. Health Care 0.25% -11
Kraft Foods Group, Inc. Consumer Staples -0.27% -9
* 1 basis point = 0.01%.

Outlook and Positioning

Although the fund continues to use bottom-up analysis for stock picking, and historically has not placed too much emphasis on top-down views, the improving U.S. economic picture contributed to the fund's return this period. Growth stocks produced solid returns, as the U.S. economy continued its slow recovery, supported by the pronounced drop in crude oil prices. The international backdrop, meanwhile, remained mired with growth concerns in most regions, including China, Europe and Japan. New and renewed armed conflict occurred around the world, and acts of terrorism and counterterrorism remained investment concerns. Despite these challenges, U.S. corporate profitability continued to improve, and the stock market extended its now six-year bull cycle.

Three sectors continued to make up the bulk of the portfolio: information technology, health care and consumer discretionary.

Within tech, the fund favored niche companies that appear to be secular growers. As noted, we liked software names with the potential to establish themselves as a new platform, which tends to lead to favorable business models and strong profitability. Examples of future platforms include SaaS, open source and big data. We're also interested in best-in-class paid-search and social-media companies that tend to provide attractive services that grow their usage and deliver their advertisements in a targeted way. The fund also invests in differentiated chipmakers, including visual computing, networking and companies that manufacture low-power semiconductors for use in portable applications.

Looking at health care, the main appeal among biotechnology and drug-discovery names are those with current and future products that can address large, unmet medical needs for an aging population. Many innovative biotech-and-pharmaceuticals companies continue to benefit from successful drug launches, favorable drug-candidate data, and less-than-expected pressure from biosimilars approved generic biopharmaceuticals from a different sponsor that come to market following the original product's patent expiration. We continue to seek out companies we believe are driving true economic benefit into the health care system, not only those with potential breakthrough drugs. In addition to the many favorable stock stories and products within health care, this sector helps to mitigate economic sensitivity in the portfolio.

Despite a large investment in the consumer discretionary sector, the fund maintained an underweighting versus the benchmark. A big portion of the underweighting is in the area of traditional media; instead, we prefer to invest in newer-media names that we consider Internet leaders ones that are classified in the technology sector. We believe the newer-media companies provide better targeted ads and are growing much faster than traditional media firms. The fund's major consumer discretionary holdings include restaurants with unit growth in front of them, hospitality companies with international growth prospects, focused omni-channel retailers, and leaders in online retail.

1. No Transaction Fee Fidelity funds are available without paying a trading fee to Fidelity or a sales load to the fund. However, the fund may charge a short-term trading or redemption fee to protect the interests of long-term shareholders of the fund. Shares are subject to the fund's management and operating expenses. See Expenses & Fees for more information.

Morningstar Category: Large Growth
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