02/2020 KIPLINGER’S PERSONAL FINANCE 29pet ownership worldwide. Peck likes
the firm’s recurring revenue model,
under which it sells equipment to vets
and then continues to sell refills for
the machines’ disposable components.
Peck likes to see a stock double in
five years (the equivalent of a 15% an-
nualized return). Lately, the portfolio
has met expectations and then some,
returning an annualized 19.8% over
the past three years, compared with
a 17% return for the Russell Midcap
Growth index. The fund isn’t cheap.
Its 1.30% expense ratio is well above
the 1.02% levied by its average peer.
But for investors willing to pay, the
fund is a consistent performer, landing
in the top half of its peer group in each
of the past nine calendar years.
2
Fidelity Mid-Cap Stock Lead
manager John Roth (who also
manages the excellent Fidelity New
Millennium fund) and comanager
Nicky Stafford share two fundamental
views: that a company’s stock price is
determined by investors’ expectations
for the firm’s future earnings power,
and that investors are often wrong.
This attitude gives a contrarian bent
to Fidelity Mid-Cap Stock, which in-
vests in stocks with growth and value
characteristics and with market caps
between $1 billion and $10 billion.
The managers hunt for emerging, fast-
rising stocks with potential for growth
that the market underestimates, or for
steadier stocks whose growth is more
sustainable than most investors think.
But they also buy cheap, beaten-down
stocks with an identifiable catalyst
to get them back on track.
Over the past several years, as the
fastest-growing stocks have become
overvalued, the fund has favored
steadily growing businesses and
shrunk its allocation to hyper growers
to less than 10%, says Roth. An excep-
tion is Peloton Interactive (PTON),
which the fund bought before it went
public in September, and still owns.
Roth says the stationary bike maker
has potentially disrupted its stodgy in-
dustry, marrying home exercise with
technology and media, and has a chance
to expand the market for exercise
equipment as it rolls out new products.
More recently, as investors have bid
up steady growers in the face of mar-
ket uncertainty, the managers have
boosted holdings in economy-sensitive
firms such as energy companies and
homebuilders. Among such holdings,
Roth likes Hess (HES), which he says
excels at finding profitable offshore
drilling sites, and homebuilder NVR
(NVR), whose management team Roth
lauds for expertly allocating capital.
Going against the grain can ding
short-term results. But over the long
term, the managers have proved them-
selves adept and nimble stock pickers.
Since Roth began managing the fund
in early 2011, Mid-Cap Stock has re-
turned an annualized 10.6%, slightly
better than its benchmark and 1.9 per-
centage points better than the average
mid-cap blend fund.3
Janus Henderson Mid Cap
Value You could say the strategy
behind this fund is risk-conscious,
though risk-obsessed might be more
apt. Managers Justin Tugman and
Kevin Preloger start by hunting for
high-quality stocks, avoiding firms
with high levels of debt and seeking
those with competitive advantages
over peers and high returns on in-
vested capital (a measure of profitabil-
ity). The pair are also value investors,
favoring stocks that trade inexpen-
sively against measures such as earn-
ings and free cash f low (cash profits
left over after capital outlays) relative
to other companies in their industry.
Once a stock makes the short list,
the managers consider a worst-case
scenario: declining revenues, shrink-
ing profit margins and investors’ sour-
ing on the stock. If they believe a 25%
decline in the share price could be in
the cards over the next 12 months, the
managers move on. For the remaining
names, the pair project a conserva-
tively positive case. The stocks for
which the pros outweigh the cons
to the greatest extent headline the