| As the chart shows, value and growth styles have outperformed each other at various times. |
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| It is difficult to predict when the market is going to shift towards favoring the growth or value style. Even professionals have a difficult time determining the points where the market is about to shift to favor one strategy over the other. |
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| Including both growth and value stocks in your portfolio will help you to avoid missing the periods of strong performance from either category. |
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| If predicting style trends and balancing your own portfolio seems too complex, investigate opportunistic funds, which leave those decisions up to the portfolio manager. |
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| Investors in growth stocks expect that the long term earnings potential of the companies that they are invested in will outpace the market's expectations. This could be accomplished by new product innovations, gains in market share or other situations that cause revenue growth to accelerate. In other words, growth companies are projected to grow faster than the average company. |
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| So why not invest in growth stocks exclusively? Because fast-paced growth does not come free, investors usually pay a higher price for growth stocks and accept more price fluctuations. (These price fluctuations are also called volatility.) |
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| These broad-based growth funds have diversified investments across many industries in the market, but tend to focus on companies with faster earnings growth rates. |
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| Value stocks tend to have slower and more stable earnings growth rates -- and investors usually pay a lower price for the slower earnings growth. Value stocks often have earnings that are more predictable, which generally makes them less volatile. Value investors expect that at some point in the future, the value of the shares they purchased will increase, and they'll profit from buying at a lower price today. |
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| Value companies may have hidden or undervalued assets, ranging from real estate holdings, to a great brand name, to a misunderstood industry to underrated products or underperforming assets. Value stocks may include companies that have improving fundamentals, but whose value is not yet recognized by the market. In some cases the value stocks may include companies that are on the verge of a turnaround that are restructuring, downsizing, or consolidating their business lines. |
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| Value funds generally look for companies that have been beaten down by the marketplace or are out-of-favor, dividend paying or not, which can often mean buying stocks of companies when most investors want to sell. |
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| In an opportunistic fund, the portfolio manager decides which investment style the fund should lean towards. These fund managers have the flexibility to allocate assets in any proportion between the value and growth styles. |
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| Investors who don't want the responsibility of making style decisions in their portfolios may choose to invest exclusively in opportunistic funds. Investors who prefer to manage their own style decisions may use opportunistic funds as a dynamic element in their portfolio. |
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| Fidelity's management philosophy focuses on bottom-up stock picking. By looking for the best companies across a broad stock universe, Fidelity's opportunistic funds seek to favor styles and sectors with the most promising opportunities. |
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Fidelity Capital Appreciation Fund looks for companies with solid earnings growth, good fundamentals and attractive valuations. |
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Fidelity Export and Multinational Fund invests in securities of U.S. companies that are expected to benefit from exporting or selling their goods and services outside the U.S. |
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Fidelity Dividend Growth Fund invests in companies that have the potential to increase or begin paying dividends. This potential to begin or increase dividend payments indicates financial strength in company and growth potential. |
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Fidelity Fifty Fund is a concentrated portfolio of 50 to 60 stocks. By focusing on a limited number of stocks, each holding will have a greater impact on performance than a typical diversified mutual fund which may hold over 100 stocks. |
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| Whether they are investing in growth or value style stocks, investors are buying the expectation of future earnings. During times when growth valuations far exceed the valuations of value stocks, investors are driving up valuations because they are optimistic that the future profit potential for growth stocks makes it worth paying higher relative prices. |
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| This does not necessarily indicate future trends. It is impossible to predict what valuations will do in the future. That is why even the most sophisticated professional investors diversify their holdings among both growth and value stocks. |
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