Fidelity's rising star bloodied but unbowed on tech bets

By Tim McLaughlin

BOSTON (Reuters) - Fidelity's high-flying OTC Portfolio, which has trounced benchmark returns over the past several years, is taking a beating in the early going of 2016 that is nearly unrivaled in the U.S. mutual fund industry.

Very little has worked in favor of the $12 billion portfolio, which favors fast-growing technology and healthcare companies that include Athenahealth Inc, Workday Inc and Zendesk Inc. Those stocks, in a portfolio with more than 200 names, are down 27 percent, 39 percent, 44 percent, respectively, this year, compared to the 15 percent decline on the Nasdaq Composite Index, the fund's benchmark.

Run by Gavin Baker, the Over the Counter Portfolio has generated a total return of minus 22.70 percent this year. That is worse than 98 percent of peers running large-cap growth funds, according to Lipper Inc.

Baker said he feels terrible the fund is down so much in 2016. Investors in the fund include Baker and his parents, he said.

"You keep your head and stick with your plan," Baker said in a telephone interview. "There's nothing more to it. Maybe look at your (computer) screen less."

It has been an upside-down year for the 39-year-old Baker, a rising star at Boston-based Fidelity Investments. His average 8.53 percent return over the past three years is better than 98 percent of peers.

Last year, the fund's 10.92 percent total return easily outperformed the S&P 500 Index's 1.38 percent return. One notable miss for Baker last year was an outsize bet on Groupon Inc, whose value has collapsed 70 percent over the past year. The OTC portfolio was the No. 1 mutual fund investor in the stock, holding 10 percent of Groupon's shares at the end of December, fund disclosures show.

Susan Wasserman, a mutual fund analyst at Morningstar Inc, said she does not expect Baker to make any big changes among his largest holdings, which include Alphabet Inc, the parent of Google Inc, Apple Inc and Amazon.com Inc, for example.

"Overall, his top 10 holdings have been there a long time," Wasserman said.

The average market cap for a company in Baker's portfolio is about $30 billion, compared to an average about $81 billion among large-growth fund peers, she said.

While Baker said he could not give any specifics about what he has been doing to upgrade the portfolio, as he put it, he did sound confident about the long-term trajectory of his biggest bets.

On a recent plane ride to California, the Boston-based manager said he re-read earnings call transcripts to see if he was missing any fundamental changes among his favorite names.

"It's beyond absurd to rethink the five to 10 year outlook for e-commerce," Baker said. "Amazon had a great quarter. Macy's and Wal Mart are closing stores."

And he does not seem to be flinching about his holdings in software-as-a-service companies such as Salesforce.com Inc. The company accounted for 1.24 percent of Baker's portfolio at the end of December, fund disclosures show.

"Some of these names are down 35 percent to 50 percent," Baker said. "But those price movements feel very divorced from the underlying fundamentals of these companies."

(Reporting By Tim McLaughlin; Editing by Cynthia Osterman)

You May Also Be Interested In

• Midday movers: Meta, IBM, Caterpillar fall; Chipotle rises
• First BanCorp (FBP) PT Raised to $21 at Keefe, Bruyette & Woods
• Reddit down for thousands, Downdetector shows