By David | Published: March 1, 2015

March 1, 2015 Contents

Dear friends,

As I begin this essay the thermostat registers an attention-grabbing minus 18 degrees Fahrenheit.  When I peer out of the window nearest my (windowless) office, I’m confronted with:

All of which are sure and certain signs that it’s what? Yes, Spring Break in the Midwest!

Which funds? “Not ours,” saith Fidelity!

If you had a mandate to assemble a portfolio of the stars and were given virtually unlimited resources with which to identify and select the country’s best funds and managers, who would you pick? And, more to the point, how cool would it be to look over the shoulders of those who actually had that mandate and those resources?

Welcome to the world of the Strategic Advisers funds. an arm of Fidelity Investments dedicated to providing personalized portfolios for affluent clients. The pitch is simple: “we can do a better job of finding and matching investment managers, some not accessible to regular people, than you possibly could.” The Strategic Advisers funds have broad mandates, with names like Core Fund (FCSAX) and Value Fund (FVSAX). Most are funds of funds, explicitly including Fidelity funds in their selection universe, or they’re hybrids between a fund-of-funds and a fund where other mutual fund managers contribute individual security names.

SA celebrates its manager research process in depth and in detail. The heart of it, though, is being able to see the future:

Yet all too often, yesterday’s star manager becomes tomorrow’s laggard. For this reason, Strategic Advisers’ investment selection process emphasizes looking forward rather than backward, and seeks consistency, not of performance per se, but of style and process.

They’re looking for transparent, disciplined, repeatable processes, stable management teams and substantial personal investment by the team members.

The Observer researched the top holdings of every Strategic Advisers fund, except for their target-date series since those funds just invest in the other SA funds. Here’s what we found:

A small handful of Fidelity funds found their way in. Only four of the eight domestic equity funds had any Fido fund in the sample and each of those featured just one fund. The net effect: Fidelity places something like 95-98% of their domestic equity money with managers other than their own. Fidelity funds dominate one international equity fund (FUSIX), while getting small slices of three others. Fidelity has little presence in core fixed-income funds but a larger presence in the two high-yield funds.

The Fidelity funds most preferred by the SA analysts are:

Blue Chip Growth (FBGRX), a five-star $19 billion fund whose manager arrived in 2009, just after the start of the current bull market. Not clear what happens in less hospitable climates.