The best performing technology fund since the peak of the dot com boom did it all without owning Apple, whose soaring stock price has pushed the Nasdaq near a new record high.
The US$941 million Fidelity Select IT Services fund has returned an average of 10.9 per cent a year since March 10, 2000, when the Nasdaq Composite hit its record high, according to Lipper data. That's more than double any other technology fund tracked by Lipper, and trounces the 0.1 per cent a year generated over the same period by the PowerShares QQQ ETF, the most popular exchange traded fund tracking the Nasdaq.
"This is a fund that doesn't have Google, doesn't have Microsoft. This is a wholly different subset of technology than most investors are familiar with," said Todd Rosenbluth, director of mutual fund research at SP Capital IQ.
The fund invests at least 80 per cent of its assets in firms that provide day-to-day services said Kyle Weaver, 38, who has been lead portfolio manager of the fund since 2009.
"We're looking for companies that have a high degree of recurring revenue that aren't very glamorous and operate in the background of our lives instead of front and centre," he said.
Weaver owns large positions in companies that few have heard of, such as Vantiv, a payments processing company, and data analytics company Cognizant Technology Solutions.
Its top holdings are Visa and Mastercard. Together, the companies make up about 26 per cent of the fund's assets. Neither is the top holding in any other technology fund, according to Morningstar data.
Weaver splits his portfolio roughly evenly between large and small companies. He recently added to positions in Vantiv, a US$7 billion market cap payment processing company, as well as Alliance Data Systems, a US$17 billion market cap company that operates customer loyalty programmes and branded credit cards. These companies that operate in the background tend to have more profitable niches and trade at less expensive valuations than average, said Weaver.
Vantiv, for instance, trades at a forward price-to-earnings ratio of 15.6, below the 20.7 multiple for the Nasdaq as a whole, while Alliance Data Systems trades at a forward P/E ratio of 16.3.
"Apple is the biggest stock in the Nasdaq and everyone knows why," Weaver said. "But I bet very few people know if ADP or Paychex cut their last paycheck."
This article appeared in the South China Morning Post print edition as: Fidelity tech fund with low-key focus beats rivals
