Fidelity Funds: Leveraged Company Stock (FLVCX), Higher Risk
FLVCX seeks out firms that operate with high levels of debt that can turn that leverage into profits, and eventually reduce the debt burden as the company prospers. The strategy has worked well over time, with the fund up an annualized 10.3% over the past decade. This performance places it in the top 6% of all midcap blend mutual funds tracked by Morningstar.
However, there is a downside to this strategy — and a steep one at that. In down markets, the fund can get damaged in a severe way. In 2008, the fund lost more than 54% (worse than the broader market’s 41%) as the financial crisis took a huge toll on firms that carry a large debt load. For this reason, the fund is best suited for patient, risk-tolerant investors only.
Manager Tom Soviero has been on this assignment since 2003, and has compiled a fine track record over time. But many simply see the fine results earned here and reach for those numbers without understanding the risk involved in such a strategy. Beta swells to 1.38 on this $5.3 billion fund.
Expenses for FLVCX run 0.82%.
As of this writing, Bill Wysor was long FLVCX and FBALX.