Fidelity Investments’ plan is that shareholders of Growth Discovery Fund (FDSVX) will find their usual satisfaction in the first five or so months of the year. In that span, Asher Anolic will temporarily take the helm from marquee manager Jason Weiner, who will spend that period away from the fund on a leave of absence, traveling with his family and pursuing educational opportunities.
X Anolic will be the acting manager not only of the $1.7 billion Growth Discovery but also of its advisor-sold twin, $3.1 billion Advisor Equity Growth (FAEGX).
For Anolic, the challenge is weighty. Weiner, who has steered the funds since February 2007 and early November of 2006 respectively, has led them to rarefied success.
The funds outperformed the broad market in the form of the S&P 500 in the latest calendar year, 2017, as well as the three and five years ended Dec. 31. If the funds keep up that pace and add outperformance over the past 10 years, they will earn inclusion as IBD Best Mutual Funds Awards winners. Only 4% of U.S. diversified stock mutual funds with at least $100 million in assets pulled off that feat by the end of 2016.
Weiner — with Anolic as co-manager since July 1 — achieved that multiperiod outperformance with portfolios featuring leading stocks like Five Below (FIVE), Red Hat (RHT) and Alibaba Group (BABA), as well as household names like Facebook (FB) and Amazon.com (AMZN), two of the FANG stocks.
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Shortly before 48-year-old Weiner began his sabbatical, he and 39-year-old Anolic talked with IBD from their Boston offices about their managerial juggling act and how their investment styles overlap and how they differ.
IBD: Jason, has your management style changed since Asher joined you as co-manager?
Weiner: Absolutely, yes. Any time you take on a partner, you talk about what you think, what your partner thinks. Ash came with experience in health care and staples, and with a much sharper quantitative investment focus. No two people have the same skill set. So one plus one equals more than two.
IBD: Asher, have you changed?
Anolic: With my background in staples and health care and financials, I never had a chance to encounter some of the big open-ended growth stories that Jason has done an excellent job figuring out. Those companies can have huge addressable markets, which become multiples of what people think they are today.
In the past, I would have shied away from those because I was afraid of getting caught in something that I wasn’t able to visualize where it could go. Jason’s been great helping me out there.
IBD: Since before the 2016 elections, the fund has swung toward cyclical stocks, then growth stocks, then back to cyclicals. How has that worked for the fund?
Weiner: In 2016 growth didn’t perform well and we didn’t get paid for owning them. We got it all back in 2017 for the first three-quarters of the year. In the last quarter those leadership names took a breather. But I think it’s healthy because we don’t want a bubble.
We stuck with growth. Now our job is to look forward into 2018 and figure out how to extend the process. No matter what the short-term gyrations are, how do we stick with names that are growing earnings and adding value?
IBD: What’s been the biggest change in the market during your career, Jason?
Weiner: When I started at Fidelity in 1991, I was a junior analyst picking small-cap names. There was an inherent advantage because small companies were where you found little trees that grew into big trees.
Today, it’s completely the opposite. The only companies growing fast are the biggest companies in the world, companies with market caps of $500 billion. That’s really driven by internet economics. This is very different, very unique.
IBD: And you still look for the best growth opportunities, with an overlay of valuation sensitivity?
Weiner: That hasn’t changed. We look for undervalued growth stories and stocks with the potential for price-to-earnings (P/E) expansion, while avoiding names that have unreasonably high valuations or deteriorating business fundamentals.
IBD: Asher, what changes will you make while Jason is out?
Anolic: Aside from the fact that I don’t love the decor (which drew laughter from both Anolic and Weiner), I expect changes in less than a quarter of the holdings. Jason has constructed the portfolio with a two-year horizon. We’ve tested lots of what-if scenarios. Nothing should surprise us. If something does crop up out of left field, I will adjust. But the fundamental approach will not change.
IBD: Does Facebook still meet your valuation check box?
Weiner: It’s valuation is a lot higher than a year ago. It occurred because they grew fast. Earnings went up. They’re touching 1 billion people a day with News Feed, their main product. You can sell a lot of advertising when you touch over 1 billion people a day.
I still think they will improve their ad targeting. So fundamentals are intact. Can I find better value elsewhere (in another stock)? That search goes on every day. After the big move in these (internet) names in the last year, that conversation is a little more intense.
IBD: With Amazon, you’re comfortable that their spending will pay off within a reasonable period?
Weiner: If you say retail as we knew it is dead and the retail of tomorrow is being invented as we speak, which companies are at the forefront? It is Alibaba and Amazon.
We like to take a company’s profit-and-loss statement and break down the business units. For Amazon, it’s domestic retail and international retail and Amazon Web Services. How is each performing? What are their opportunities? With the investments they make, what will future earnings be like?
IBD: Asher, what would you add?
Anolic: AWS is cost intensive, more than the rest of Amazon. But it has taken a ton of market share, and has good margins and good cash flow. It’s at the forefront of a major technological shift.
IBD: Any more thoughts about Alibaba?
Weiner: I look at Amazon and Alibaba as a pair. You want to distill the thoughts of Alibaba’s Jack Ma (founder and executive chairman) and Amazon’s Jeffrey Bezos (founder, chairman and CEO)? Looking at them together is helpful to understanding what those visionaries are doing. Just one part of that is inventing a new world of retail.
IBD’S TAKE: For the latest news and analysis of Chinese stocks, visit IBD’s special section about Chinese stocks to buy and watch.
IBD: Does Five Below defy the problems of many brick-and-mortar retailers by discounting and by focusing on a teen audience?
Weiner: It’s too small to worry about, but I will tell you this: It’s like Dollar Tree (DLTR) plus a treasure-hunt thing. Mom can bring her kids, who go to the $5 basketballs while mom goes to the $5 makeup aisle. I remember the CEO saying once, “This is the only store where you can bring your kids and not have any fears.”
IBD: Red Hat is the top provider of open-source Linux software for corporate data centers. Is that like being the top buggy-whip maker?
Anolic: With the move to the cloud, people are worried about Red Hat’s growth prospects. If you have a Linux operating system for several servers, but then you move a lot of that data to AWS or Google Cloud or Microsoft (Azure), you don’t need all of those servers or that operating system.
But Red Hat’s core Linux business is still fantastic. Much in the cloud runs on Linux. And Red Hat is reinventing its business. They have a new product that can write programs on top of the Red Hat system and port them to different clouds. It gives CIOs the flexibility of not getting locked in to one cloud vendor. This gives some visibility to how Red Hat looks in a cloud environment. We’re going to keep monitoring it. It’s a fascinating solution.
IBD: What business hasn’t been totally disrupted, but could be eventually?
Weiner: Digital payments. Payments in general have entrenched players like Visa (V) and Mastercard (MA) and card-issuing banks like Citi (C) and JPMorgan (JPM) and merchant acquirers like First Data (FDC) and Global Payments (GPN). That system has been built over decades.
But PayPal has given us a taste of disruption. We’ve all used PayPal at checkout. Can they take that beachhead and expand into the payment space? They’ve already got Venmo in people-to-people payments. And they own Braintree, which (provides mobile and web payments acceptance and processing for) merchants. (The payments space) feels ripe for disruption.
IBD: Why do you like Copart (CPRT)?
Weiner: It’s a duopoly (with KAR Auction Services (KAR)), a great business. Hurricane Irma rolls through (the Caribbean and) Florida, Harvey hits Houston, and 100,000 cars get wrecked. They get disposed of through auto auctions. Copart is family run, has super profitability and super acquisitions. When cars get totaled, sometimes the scrap value is higher than a resale value.
IBD: Asher, you’re continuing to run $784 million Select Pharmaceuticals (FPHAX). What’s the biggest change in joining Jason at the helm of Growth Discovery?
Anolic: Jason has been helpful in teaching and generous with his time. So I’m totally up to speed on what is needed. And we worked together before I was named co-manager, so I was familiar with how he runs money.
The biggest change is moving from one sector to the whole market. Six months of partnering doesn’t teach you everything that someone running for 20-plus years has learned. But the skill set I’ve built allows me to understand day-to-day market moves and how to learn as I go.
IBD: Jason, was Asher’s apprenticeship long enough?
Weiner: Asher is an experienced investor. And the way the fund (Growth Discovery) is built, 70% of its assets are in the top 40 names, so Asher only has to learn about 40 names to understand nearly three-quarters of the portfolio. Also, Asher already knew some names from his work on other mutual funds. And we have a huge amount of research support.
IBD: Jason, will you be able to hit the ground running when you return in May or so?
Weiner: I think I’ll be raring to go. I’ll have had a nice break, but it will be nice to get back to business.
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