August 16, 2008

Fidelity 130/30 Large Cap Fund (FOTTX)

I am a long term investor. I am not planning on using most of the money I have currently invested until at least 20 or 25 years. With that said, it is still difficult to watch your investments decrease by 20 or 30% during these normal bear markets. Although I am a long term investor, I am always looking for ways to hedge against some of the downturn.

Fidelity recently launched the Fidelity 130/30 Large Cap Fund. The ticker is FOTTX. For those who are not familiar with 130/30 funds, they are structured as follows. The fund shorts approximately 30% of the market. The fund uses the proceeds from the short positions to add positions on the long side, essentially taking the fund 130% long. Hence the 130/30.

These type of funds are supposed to protect your portfolio to some degree during a downturn since some of the positions are short. So let's see how FOTTX is doing versus the S&P 500 for the most recent bear market.

Overall I'd say not bad. As you can see, since the launch in April both funds have lost about 5%. The real story is related to the decrease to the lows in July. The S&P 500 was down as much as 12%, while FOTTX only lost around 6% at it's lows.
It's important to note that this is very short term performance. I'll post periodically about this fund versus the S&P 500.