Anyone know why Fidelity Advisor Mid Cap T (FMCAX) took a dive in
April? The only news I can find related to a gift scandal...but didn't
appear to be directly associated with this fund. Morningstar has taken
it to 2 stars...but I don't understand the rational...
wrote:
>
> Anyone know why Fidelity Advisor Mid Cap T (FMCAX) took a dive in
> April? The only news I can find related to a gift scandal...but didn't
> appear to be directly associated with this fund. Morningstar has taken
> it to 2 stars...but I don't understand the rational...
The dive you refer to (posted April 21) is a drop from $23.72 (April 1)
to $23.07 (April 21), or 2.40%. If we compare it with the S&P Midcap
400 (using iShares S&P Midcap 400 as a proxy), we see a drop from
$127.03 (April 1) to $123.50 (April 21), or 2.78%.
It seems that the Fidelity fund merely tracked the market (outperforming
it slightly).
As to the drop from three stars to two, you need to understand how
Morningstar assigns star ratings. There is no "rationale"; it is a
mechanical computation. Morningstar averages 3, 5, and (if available)
10 year performance and risk, relative to other funds in its category,
to come up with the star rating.
For this fund, which is more than 5 years old, but less than 10, the
overall rating is computed by weighting the 5 year rating 60% and the 3
year rating 40%. (See fact sheet, above.)
If we look at the star ratings over each of these time periods
we see that over the past three years, this was a 3 star fund (average
performance with above average risk, which puts it in the low 3 star
range). We also see that over the past five years, the performance was
below average with above average risk, placing it squarely in the ranks
of 2 star funds.
So what happened to drop the five year ranking (and thus the overall
ranking)? We can see by looking at the performance data for early 2000.
2000 (five years ago) was a banner year for this fund; its performance
for that year was in the top 5%. Looking at the quarterly returns, it
is likely that much of the outperformance, relative to peers, came when
the market moved up substantially, and it did very well - that's the
first quarter of 2000 (the fund was up 23.26% that quarter). Likewise,
it did very well in 1999 (top 9%), and its great quarter was the fourth
quarter (up 28.34%).
As days went by, and these few months faded into history (more than 5
years past), the five year relative performance no longer looked as
good. The five year rating likely dropped to 2 stars, dragging down the
overall rating with it.
Remember, that even though the fund did well in late 1999 and early
2000, that won't count in its overall star rating (because that old
performance won't count in 3 or 5 year averages). This will only change
when the fund is 10 years old (and then those figures will reappear in
its 10 year star rating).
--
Mark Freeland