Stock-pick­ing ace be­moans shrink­ing stock pool

The Globe and Mail (Alberta Edition) - - GLOBE INVESTOR WEEKEND - CHARLES STEIN

Joel Tilling­hast, whose Fidelity Low-Priced Stock Fund has dra­mat­i­cally out­per­formed its bench­mark over the past 25 years, said stock pick­ing has be­come more dif­fi­cult be­cause there are fewer stocks to choose from.

“The num­ber of pub­lic com­pa­nies has dropped by half, which is a great frus­tra­tion for me,” Mr. Tilling­hast said in a Bloomberg Tele­vi­sion in­ter­view.

The num­ber of U.S. pub­licly traded firms dropped to about 4,400 in 2016 from more than 8,000 in 1996, the re­sult of merg­ers and ac­qui­si­tions and a de­cline in ini­tial pub­lic of­fer­ings.

Mr. Tilling­hast, who spe­cial­izes in small cap stocks, said his job as portfolio man­ager has also be­come tougher be­cause of the chang­ing na­ture of the U.S. econ­omy. “It has be­come more of a win­ner-take-all mo­nop­o­lis­tic, oligopolis­tic mar­ket,” he said. “In the Rus­sell 2000, which is my bench­mark, there are more losers than win­ners.”

Mr. Tilling­hast’s $38-bil­lion (U.S.) fund re­turned 13 per cent a year in the 25 years ended Aug. 31, com­pared with 9.7 per cent an­nu­ally for the Rus­sell 2000 in­dex, ac­cord­ing to data com­piled by Bloomberg. Over the past five years, the fund rose 12 per cent, beat­ing only half its peers.

Hired by the leg­endary stock picker Peter Lynch, Mr. Tilling­hast said that the re­tail in­dus­try, one of his favourite bar­gain-hunt­ing areas, had be­come harder to hand­i­cap be­cause of the rise of Ama­ Inc.

Asked if he could fig­ure out which re­tail­ers would sur­vive in a world dom­i­nated by Ama­zon, Mr. Tilling­hast replied, “Only if Jeff Be­zos will con­fer­ence call me and tell me who is go­ing to die.” Re­tail­ers Best Buy Co. and Ross Stores Inc. are among the fund’s top five hold­ings.

In a sep­a­rate in­ter­view, Mr. Tilling­hast said the the rise of pas­sive in­vest­ing may lead in­vestors astray. “The most de­struc­tive,” thing about pas­sive, he said, is that it may cause peo­ple to pay too lit­tle at­ten­tion to the price they pay for a stock. He said it was im­por­tant to fo­cus on re­silient, durable busi­nesses and the tal­ent of the peo­ple run­ning those com­pa­nies.

Fidelity, based in Boston, is best known for its ac­tive man­agers, but the firm in re­cent years has boosted its of­fer­ings of low-cost in­dex funds and ex­change-traded funds. The largest stock fund at Fidelity is the $123-bil­lion Fidelity 500 In­dex Fund.

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