After a Sunday of reading the paper, watching a little television, and wondering why your kids are spending so much time surfing the Internet, investing in those same media outlets probably doesn't seem like much of a stretch. Even if that's not how you spend your free time, Americans' seemingly insatiable desire for entertainment and information has made the unusual Fidelity Select Multimedia Portfolio an attractive specialty fund.
A lot of mutual funds focus on specific sectors of the stock market; Fidelity alone offers 58 different funds. Most of them are devoted to large industries, such as technology and financial services. This offering is one of just two in the fund universe dedicated to media investing.
Fidelity Select Multimedia Portfolio buys a range of media stocks. Recently, its biggest stake has been in publishing; the largest position in the fund's latest reported portfolio was Times Mirror Co., which owns newspapers and magazines. The fund also owns shares in a number of content providers, such as Disney, that produce movies and TV shows, and in businesses that distribute programming. In addition, the fund buys stock in related areas such as phone companies, computers and the equipment providers that supply infrastructure for a variety of media businesses.
The fund's media-focused portfolio has been a successful play on the strength of the U.S. economy. When the economy does well, the fund usually does, too. After the country emerged from the recessionary environment of 1990, the fund embarked on a string of top-performing years. From 1991 through 1995, its average annual return was 26.3 percent vs. 16.6 percent for the Standard & Poor 500.
Despite a reasonably strong, though slowing, economy, the picture for this fund wasn't so good in 1996. As investors retreated to classic growth stocks such as General Electric and Coca-Cola, many of the fund's forward-looking holdings were undercut by weak earnings and worries about whether they could meet future high expectations. Though its newspaper stocks did fairly well, the fund ended the year with a disappointing return.
The fund's long-term returns are nevertheless in the upper reaches of all mutual funds. However, a front load of 3 percent reinforces the point that this fund best serves long-term investors. The load's impact is minor if you own the fund for several years but is much more significant in the shorter term.
Investors will be comfortable with this fund only if they can tolerate manager shufflings that resemble channel surfing. The fund is subject to the frequent manager turnover that affects most Fidelity funds--it has had seven managers in its 10-year lifetime.
Fortunately, that's less of an issue for this fund than for Fidelity's diversified funds, where the managers have the flexibility to invest in a variety of industries. Because this fund invests in a somewhat constrained area, the quality of its industry research has been the more important element of its success. If you invest in this fund, or any of Fidelity's specialty offerings, it should be because of Fidelity's research and analytical resources, which are the most extensive in the industry.
At A Glance
Fund name: Fidelity Select Multimedia Portfolio
Managed by: Fidelity Management and Research in Boston
Total assets: $72.6 million
One-year return: 1.08%
Three-year return: 12.02%
Five-year return: 18.71%
Ten-year return: 17.07%
Expense ratio: 1.54%
Peter Di Teresa is an analyst at Morningstar Mutual Funds. The above opinions are those of the author and not of Entrepreneur. These investment vehicles may not be right for you. Carefully investigate before investing.
Fidelity Select Multimedia Portfolio, (800) 544-8888, fax: (312) 696-6352.