A recent piece in Barron’s profiles the Fidelity Blue Chip Growth Fund (FBGRX). This $21 billion no-load fund sports a 0.89% net expense ratio and 51% turnover. According to the article

Year to date [the fund] has returned 6.5%, beating the 1.2% for the Standard & Poor’s 500 index, and the 5.7% for its benchmark, the Russell 1000 Growth Index. The fund has beaten 93% of its large-cap growth peers in the past five- and 10-year periods.

The current manager took over the fund at the beginning of July 2009, so that date will serve as a starting point for our further analyses. The prospectus benchmark for the fund is the Russell 1000® Growth Index. One of the low-cost implementations of this index is the iShares Russell 1000 Growth ETF (IWF). Alpholio™’s calculations show that the fund returned more than the ETF in approximately 88% of all rolling 36-month periods, 65% of 24-month periods and 71% of 12-month periods. The median amount of rolling 36-month outperformance was about 5%.

Comparing only returns does not account for risk. To get a better insight into the fund’s performance, let’s employ a variant of Alpholio™’s patented methodology that constructs a reference portfolio of ETFs with fixed membership but variable weights. This portfolio dynamically tracks the fund’s composition and core exposures over time. Here is the resulting chart of cumulative RealAlpha™ for Fidelity Blue Chip Growth:

Cumulative RealAlpha™ for Fidelity Blue Chip Growth (FBGRX)

The fund produced about 0.7% of the regular and 1.3% of the lag annualized discounted RealAlpha™ (to learn more about this and other performance measures, please visit the FAQ). Most of the positive RealAlpha™ was generated over just one year beginning in the second quarter of 2013. At 15.4%, the fund’s standard deviation was a bit higher than that of its reference ETF portfolio. The fund’s RealBeta™ was around 1.13.

The following chart illustrates changes to ETF weights in the reference portfolio:

Reference Weights for Fidelity Blue Chip Growth (FBGRX)

The fund had major equivalent positions in the iShares Morningstar Large-Cap Growth ETF (JKE; average weight of 30.7%), PowerShares QQQ (QQQ; 19.5%), iShares S&P Mid-Cap 400 Growth ETF (IJK; 12.4%), Vanguard Consumer Discretionary ETF (VCR; 11.0%), iShares Morningstar Mid-Cap Growth ETF (JKH; 7.1%), and iShares Russell 2000 Growth ETF (IWO; 5.3%). The Other component in the chart collectively represents additional five stock ETFs with smaller average weights.

Under current management, the Fidelity Blue Chip Growth Fund added a decent amount of value on a truly risk-adjusted basis; however, its outperformance was concentrated in a relatively short period of time. This actively-managed fund’s reasonable expense ratio adds to its appeal. Although consisting mostly of long-term capital gains, the fund’s recent substantial distributions (over 5% of NAV in each of 2013 and 2014) made it less suitable for taxable accounts.

To learn more about the Fidelity Blue Chip Growth Fund and other mutual funds, please register on our website.

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