The curated database of hedge funds that publish investor letters. Research by geography, strategy, and schools of thought.
| # | Fund | Strategy | Style | Geography | AUM | Latest Letter |
|---|---|---|---|---|---|---|
Fidelity Small Cap Discovery Fund returned -7.22% in Q2 2024, underperforming the Russell 2000 Index's -3.28% return. The fund's value-oriented approach faced stylistic headwinds as expensive, high-momentum stocks outperformed while value stocks lagged. U.S. small-cap stocks struggled relative to large-caps, with the S&P 500 gaining 4.28% on AI-driven growth stock strength. Security selection was the primary driver of underperformance, particularly in healthcare and financials. Key detractors included Owens & Minor (-51%) due to cash flow concerns and management changes, Olin (-20%) on cyclical worries, and FirstCash Holdings (-17%) after prior gains. Positive contributors included Insight Enterprises (+7%) on strong earnings and Coca Cola Consolidated (+28%) following a share buyback announcement. The manager maintains sector overweights in industrials and consumer discretionary while underweighting healthcare. Despite near-term market turbulence expected from macro developments and the presidential election, the team remains confident in their disciplined value approach and sees compelling opportunities in small-cap stocks for active management alpha generation.
The fund seeks to identify small-cap companies with low implied expectations where there is substantial disparity between current share price and intrinsic value through intensive bottom-up research and disciplined portfolio construction.
Looking ahead, we anticipate some turbulence in the stock market driven by macroeconomic developments and, notably, the U.S. presidential election in November. Despite the uncertainty, we are confident in the fund's investment process and our ability to remain disciplined amid the market volatility. We're continuing to conduct thorough research across the small-cap market so that we can make tactical purchases when attractive opportunities present themselves. We continue to find compelling investment opportunities in small-cap stocks, and we believe there may be ample opportunity to add value as an active manager versus the benchmark.
As of Jun 30, 2024
Forrest St. Clair serves as portfolio manager within Fidelity's Global Institutional Solutions group, managing the Fidelity Small Cap Discovery Fund since March 2023. He brings extensive small-cap investment experience, having managed the Small Company Strategy since 2009 as part of Fidelity Institutional Asset Management's Small Cap team. His professional background includes entrepreneurial experience as co-founder of Skystone Capital Management, where he served as portfolio manager from 2005 to 2007. St. Clair has been active in the financial industry since 1998, providing over two decades of investment experience. His educational foundation includes a Bachelor of Arts in biology from Williams College. Since July 2025, he has expanded his responsibilities to include management of the Fidelity Funds 2 - US Smaller Companies Fund. His long tenure managing small-cap strategies at Fidelity demonstrates deep institutional knowledge and commitment to the asset class. The combination of his entrepreneurial background and institutional experience provides unique perspective on small-cap investing. His extended track record managing the FIAM Small Company strategy since January 2009 demonstrates consistency and expertise in small-cap portfolio management.
The fund seeks to generate long-term outperformance through individual stock picking while limiting the impact of other variables. A key element of the investment philosophy is that stock picking should drive the majority of this fund's alpha. The fund seeks long-term growth of capital, normally investing at least 80% in small-cap securities, primarily in common stocks. This approach emphasizes comprehensive bottom-up fundamental analysis to identify undervalued securities with strong growth potential within the small-cap universe. The investment process incorporates both growth and value characteristics, providing flexibility to adapt to changing market conditions while maintaining core focus on small-cap opportunities. The strategy involves active management with a portfolio turnover rate of 67%, balancing transaction costs with the need to capitalize on market opportunities. The fund maintains diversification across approximately 150 stocks while allowing for meaningful concentration in high-conviction positions. Geographic focus remains predominantly domestic with over 94% invested in U.S. equities, aligning with the small-cap discovery mandate and allowing portfolio managers to focus research efforts on the deep U.S. small-cap market.
Lead Portfolio Manager
Moderate Conviction Bullish
Market Conviction
The manager demonstrates high conviction in their value-oriented investment process and approach, maintaining positions despite underperformance. They express confidence in specific holdings like Owens & Minor despite significant drawdowns and actively added to positions like Olin during weakness.
Growth Outlook
The manager acknowledges challenging conditions for small-caps and value stocks, with uncertainty around monetary policy and recession risk. However, they note constructive earnings growth backdrop and muted recession risk, creating a mixed but slightly negative outlook.
Risk Appetite
The fund maintained its positioning with no meaningful shifts during the quarter, showing a balanced approach. The manager took advantage of weakness to add to Olin position, indicating selective risk-taking, but overall maintained disciplined exposure levels.
Capital Deployment
The fund maintained 4% cash position with no meaningful portfolio shifts during the quarter. However, the manager did add to the Olin position during weakness and trimmed Insight Enterprises after gains, indicating selective tactical deployment activity.
Forward Guidance
Despite expecting market turbulence, the manager expresses confidence in their process and ability to make tactical purchases when opportunities arise. They continue to find compelling investment opportunities and believe in adding value through active management.
Language Signal
Language is balanced with acknowledgment of challenges but also confidence in the approach. Terms like 'compelling investment opportunities' and 'ample opportunity to add value' are positive, while 'turbulence' and 'uncertainty' provide negative balance.
Perceived Risk
The manager acknowledges multiple risk factors including uncertain monetary policy, potential market turbulence from macro developments, and the upcoming presidential election. However, they note muted recession risk and maintain confidence in their ability to navigate volatility.
Opportunity Density
Despite challenging market conditions, the manager continues to find compelling investment opportunities in small-cap stocks and believes there is ample opportunity to add value as an active manager. They are conducting thorough research to make tactical purchases when opportunities present themselves.
Time Horizon
The fund's approach emphasizes long-term intrinsic value assessment and business cycle analysis. The manager maintains confidence in longer-term holdings like Owens & Minor despite near-term challenges, indicating a patient, multi-year investment horizon.
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