High-Octane Growth at Fidelity Growth Company

published 30 November 2006

Editor's note: This is part of a continuing series of articles looking at the 20 biggest no-load stock funds.

You don't have to be little to invest aggressively, as Fidelity Growth Company proves. Steve Wymer, manager of the $29 billion fund since 1997, focuses most of his attention on fast-growing technology and health-care stocks. Each sector accounts for a third of the fund's 275 holdings. The fund, which closed to new investors in April 2006, focuses on companies with rapid revenue growth and stock-market values of more than $1 billion. "The theory is when revenue is growing, potential is there," says Wymer. "But I don't chase growth for growth's sake. I invest in good businesses that will be profitable in the long term."

Wymer searches for what he calls "self-help stories." These are companies improving their business through acquisitions and management changes. He also seeks companies that are in the midst of product cycles that will spark revenue growth. One example: Japan's Nintendo (symbol NTDOY), which recently launched the game console Wii. And he invests in spin-offs, such as Ameriprise Financial (AMP), which American Express jettisoned in 2005.

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In technology, Wymer focuses on niches he thinks have high-growth potential, including wireless technology and Internet search. The fund's top spot, as of September 30, was Google (GOOG). Wymer is betting on the success of the company's advertising platform, in which ads are tailored to each particular viewer. "Google represents one of the best areas of technology," Wymer says. Elsewhere in the tech sector, he likes companies that deal in software-related services, such as Red Hat (RHAT), which gives away the Linux operating system and charges customers for support and consulting services. In health care, Wymer focuses on three areas: biotechnology, diagnostics, and health-care technology. "I'm looking for companies that can grow if health-care spending goes up," says Wymer. Two companies he favors in that realm are biopharmaceutical firms Celgene (CELG) and Elan (ELN).

With Wymer behind the wheel, Growth Company has delivered solid results over the long term. Over the past decade, the fund's 9% annualized return was better than the results of 93% of funds that focus on large, fast-growing companies. But Growth Company can take shareholders on a bumpy ride. The fund has been 25% more volatile than its rivals and can crash when high-octane companies fall out of favor. During the 2000-02 bear market, the fund plunged 69%, compared with a 47% decline for the S&P 500.

Still, given Wymer's fine record versus his peers and our view that large-company growth stocks represent one of the most attractive segments of the market, we suggest that shareholders continue to BUY Growth Company.