HEAD-TO-HEAD: Fidelity versus T Rowe Price

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Investment approach

Both the Fidelity and T Rowe Price funds invest in global technology stocks, with their portfolios having a bias toward large-caps and the US, according to McDermott.

Market cap allocation

Source: Morningstar Direct. As of 31 May 2020.

Top five country allocations

Source: Fund factsheets. As of 31 May 2020.

With both funds being actively-managed and looking at the same investment universe, both offerings are very similar in terms of their investment strategies, McDermott said. However, he noted that individual stock allocation is different in both products.

“Both are stock-picking funds looking for similar companies. [But] the widening breadth of the technology sector now means that the managers can take strong active positions away from their respective benchmarks. For example, only one stock, Alphabet, sits in the top 10 holdings of both funds,” he said.

Top 10 holdings

Source: Fund factsheets. As of 31 May 2020.

The Fidelity fund’s manager, Hyunho Sohn, focuses on identifying quality companies with sustainable growth prospects trading at attractive valuations, according to McDermott.

Investments tend to fall into three categories – growth, cyclical and special situations. Growth companies are those that have disruptive technology and are set to experience high growth, while cyclical opportunities are found in sub-sectors and typically have strong market positions. Special situations are mispriced businesses with recovery potential.

Turning to the T Rowe Price fund, McDermott noted that the product had been closed to new investors as a result of strong performance, but re-opened when Alan Tu became the manager in March last year.

Since Tu took over, notable changes have been made to broaden out the fund. For example, Tu increased mid-cap holdings and invested more in software names, where his expertise lies, McDermott said. According to data from Morningstar Direct, mid-cap companies accounted for only 10% of the portfolio in 2018, which compares with the current 15% allocation.

Tu also believes that exploring opportunities in private companies also improves his understanding of the competitive landscape, which helps in providing the earliest possible awareness of changes in the industry.

“He likes to get to know them in advance of going public and when a company completes its initial public offering, he can potentially act quickly,” McDermott said.

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