Fund eases shift to 'hottest action'
Boston — "Where's the action?" The question is usually asked by teenagers looking for a good time on a Saturday night. But it is also asked frequently by mutual fund investors who want to know what industries are "hot" and want to find a fund that can put their money there.
For the last few years, many investors have found mutual-fund companies that had several individual funds and "switched" from one to another to catch the rising industries or change from one investment strategy to another, as from an income to a growth fund.
To make this switching easier and to save investors some taxes, the Fidelity Group in Boston has introduced a new fund, Fidelity Select Portfolios. The fund is broken up into four individually managed portfolios covering four separate industries. With just a phone call, an investor can move from precious metals and minerals stocks to technology, health care, or energy issues.
"The individual has the opportunity to pick the market sector where he thinks the action is going to be," said William Hayes, a portfolio manager at Fidelity. After investing a minimum of $5,000 in one of the portfolios, the investor can switch all or part of his money from one to another if he thinks a certain industry will offer a better return.
An advantage this has over previous forms of mutual-fund switching, said Victor Kramer, group retail product manager, will be seen at tax-paying time. When a person switches from one fund to another, there may be a taxable capital gain from the first fund. With the Select Portfolios, the switch is made within the same fund, and "we can net out all of the capital-gains effect," he said.
The groups were chosen, Mr. Kramer said, because these seem to be the four industries with the most growth potential. In addition, they have a number of sub-industries that permit the group portfolio managers to take advantage of changes within particular industries. In energy, for instance, there are international oil stocks, domestic oil stocks, alternative energy companies, oil service firms, and drilling equipment producers.
The fund, which became available July 6, will eventually have about 40 stocks in each of the four portfolios. Stock selections will be based more on the stocks' long-term growth potential than on immediate capital appreciation.
Should an investor decide that none of the four groups are appealing, he can switch his money into Fidelity's money-market fund a nd "park" it there until something looks "hot" again.