Fidelity Leveraged Company Stock (FLVCX)

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johnra
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Fidelity Leveraged Company Stock (FLVCX)

Post by johnra » Sun Dec 17, 2017 2:52 pm

Apparently, rather than a high yield bond fund, this is a stock fund focusing on companies that offer high yield bonds (highly leveraged). So, is this strategy a play for growth, or a play for income through dividend growth? What are your thoughts on this approach?

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sometimesinvestor
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Re: Fidelity Leveraged Company Stock (FLVCX)

Post by sometimesinvestor » Sun Dec 17, 2017 3:03 pm

It worked very well from 2002 -early in 2008. Since then not as well.If energy comes back it may do well

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whodidntante
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Re: Fidelity Leveraged Company Stock (FLVCX)

Post by whodidntante » Sun Dec 17, 2017 3:09 pm

"Leveraged company" is not a source of return. If you want a diversifier, you might want to diversify across factors like size, value, and momentum because those are sources of return.

lack_ey
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Re: Fidelity Leveraged Company Stock (FLVCX)

Post by lack_ey » Sun Dec 17, 2017 3:15 pm

That's kind of interesting that you ask, in the sense that people don't usually ask about funds with relatively poor track records the last 10 years or so.

You can get high leverage and relatively high-yield bonds for a company from aggressive debt-fueled growth or bad balance sheets with dwindling prospects, small size and lack of an established record, among other things. Could be growth or value companies.

Morningstar style box bears this out:
Image

These stocks are riskier than the typical ones in the market, usually higher beta and higher volatility, being more sensitive to changing prospects and the market direction. When you think about the quality factor or a dividend growth type of strategy, this seeks the stocks on the other side to a certain extent. And if you regress the past returns, you do see a significant negative quality factor load. That said, a lot of the holdings are big brands, more like aggressively growing or not particularly that notable, rather than recklessly leveraged. I don't mean to suggest that every stock here is risky, just that on average the strategy should tend in that direction.

It's primarily a bet on the manager being able to identify better stocks within this riskier, generally underperforming group (underperforming definitely on a risk-adjusted basis, and also to an extent in absolute returns), which may have more diverging outcomes based on less certain futures. The fund manager, Mark Notkin, has only been running the fund since the latter part of 2016.

An above post references the energy sector, but the fund's exposure was only 6.3% as of the end of October, similar to the market.

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