Fidelity Large Cap Fund analysis Research Paper

Pages: 5 (1493 words)  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: College Senior  ·  Topic: Finance

The fund's has struggled to perform better than the market, other than for a few good years. In big up years on the market, this fund outperforms. This is in line to an extent with the higher volatility that the fund has, but there is also the consideration that the fund has underperformed in most other years, for example losing value last year when the market gained slightly. The thing with funds is that you are paying for active management, and should have the expectation that the fund will outperform for that fee. I do not see outperformance that would justify a four star rating. For me, a three star rating is reasonable for a transparent and well-run fund, but one that does not have a history of outperforming the market.

4. The fund has good diversification. The asset allocation is 20.81% information technology, 20.73% financials, 14.86% health care, 13.24% energy, 11.96% industrials, with consumer discretionary, consumer staples and materials all over 3% in terms of composition as well. The fund's mandate is to be a broad-based large cap fund, so in that sense this asset allocation looks fairly reasonable.

The top holdings account for 25.68% of the total fund. These are:

• JP Morgan Chase

• Apple

• Bank of America

• Microsoft

• General Electric

• Citigroup

• Qualcomm

• Procter & Gamble

• Williams Companies

• Alphabet (Google)Buy full Download Microsoft Word File paper
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Research Paper on Fidelity Large Cap Fund analysis Assignment

While having the top ten stocks as a quarter of the fund is not bad -- this means that there is a considerable amount of diversification overall, there is a certain lack of diversification among this top ten. As an example, Bank of America and Citigroup are both major retail banks, with roughly the same drivers. Apple, Google and Microsoft may dominate the different elements of consumer electronics, but having both major smartphone operating system makers, both PC operating system makers, and two of the major online advertisers just means that this fund has exposure to certain entire industries. These are large industries, and of course the fund should own these companies, but ultimately there is a certain lack of diversification having two or more companies in the same industry in such high concentration.

As such, it may be worthwhile for the fund to seek out other companies in other industries. For example, moving out of one of the retail banks and into more health care might improve the overall diversification. The fund manager could improve diversification without leaving any stock, just shifting the asset allocations among the holdings to de-emphasize a couple of these top ten, and add a couple of different industries into the top ten holdings.

By making changes to the composition of the fund, the fund manager can also lower the risk level of the fund. As noted above, one of the issues with the fund's performance is that it has higher volatility than the market average, but does not return higher returns except in the strongest bull years. This should be of concern to investors. By re-allocating to find other growth industries -- health care is certainly a good one -- or to add retailers (Starbucks, Home Depot, Amazon, etc.) the company might find better diversification among its holdings, and become exposed to more sectors of the economy. This can certainly come at the expense of companies like Apple or Microsoft that, while cash cows, are starting to push up against their upside potential.

Overall, the Fidelity Large Cap Stock Fund is a fairly average fund. While decently-run and coming from a large fund company, this fund has not in the past couple of years offered a return to match its risk. Morningstar does not have much of a problem with this, but an investor should be wary of this fund. Its performance does not justify a four-star rating, and there are some issues with composition in that some of the top ten holdings duplicate each other. So, despite an overall good level of diversification, at the top end of the holdings there are too many similar companies, and their performance levels might be explanatory for why the fund is not meeting expectations, or has not been in the past couple of years.


Fidelity (2016) Fidelity Large Cap Stock Fund. Fidelity. Retrieved October 20, 2016 from

Investopedia (20160) Sharpe ratio. Investopedia. Retrieved October 20, 2016 from

Morningstar (2016) Fidelity Large Cap Fund. Morningstar Retrieved October 20, 2016 from… [END OF PREVIEW] . . . READ MORE

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How to Cite "Fidelity Large Cap Fund analysis" Research Paper in a Bibliography:

APA Style

Fidelity Large Cap Fund analysis.  (2016, October 20).  Retrieved September 18, 2020, from

MLA Format

"Fidelity Large Cap Fund analysis."  20 October 2016.  Web.  18 September 2020. <>.

Chicago Style

"Fidelity Large Cap Fund analysis."  October 20, 2016.  Accessed September 18, 2020.