Fidelity Shows How Unicorns Hurt Performance at Popular FundsFidelity Shows How Unicorns Hurt Performance at Popular Funds
Fidelity has stepped up disclosure of how pre-IPO companies affect mutual fund performance.
July 18, 2017
By Tim McLaughlin
BOSTON, July 18 (Reuters) - Fidelity's bets on unicorncompanies, the rare private firm or startup that grows in valueto at least $1 billion, put a dent in the stellar performance ofsome of the company's most popular mutual funds during the firsthalf of 2017.
Fidelity has stepped up disclosure of how pre-IPO companiesaffect mutual fund performance. This week, for example,Boston-based Fidelity Investments showed how content-sharingcompany Pinterest Inc had an outsize impact on the portfolioperformance of its most popular stock fund.
Pre-IPO investments can amplify a fund's relativeperformance because they are not included in a comparisonbenchmark index. And the valuations attached to them by Fidelityand other mutual fund companies have far outpaced the stockmarket.
Fidelity's $114 billion Contrafund disclosed thatits small stake in Pinterest shaved 9 basis points off thefund's relative return versus the S&P 500 Index.Contrafund's Series E stake in Pinterest was valued at $473.3million in the first quarter. But at the end of May, that valuewas marked down by 17 percent, Fidelity disclosures showed.
Fidelity was not available for comment. But Pinterest wastied with TJX Companies Inc as Contrafund's largestdetractor in the second quarter, even though the pre-IPO companyaccounted for only 0.34 percent of the fund's net assets.
Contrafund, which is run by star Fidelity portfolio managerWill Danoff, posted a total second-quarter return of 6.09percent in the second quarter, easily beating the 3.09 percenttotal return on the S&P 500 Index.
The fund's year-to-date return of 19.84 percent is betterthan 75 percent of U.S. large-cap growth mutual funds, accordingto Morningstar Inc data.
Fidelity's valuation of Contrafund’s Series E stake inPinterest has more than doubled since an initial investment of$159.4 million in October 2013, compared to Nasdaq's 62 percentrise.
While Pinterest is a relative pipsqueak in the massiveContrafund portfolio, other Fidelity managers have made techunicorns some of their largest holdings.
At the end of May, ride-hailing company Uber was a top 20stock in Fidelity's $22 billion Blue Chip Growth Fund.The fund's Series D stake in Uber was valued at $251.5 million,or 1.14 percent of net assets.
Portfolio manager Sonu Kalra's Uber stake is bigger than hisbet on Starbucks Corp ($202 million) and Bank of America Corp($157 million).
In the first quarter, Uber was among the fund's largestdetractors, shaving 12 basis points off the fund's relativereturn. Only Qualcomm Inc and Lululemon Athletica Inc detractedmore.(Reporting By Tim McLaughlin; Editing by Tom Brown)
