Ways of Winning in a Bull Market

Michael Oh, lead manager of the Matthews Asia Innovators Fund. He said his goal is to

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invest in companies benefiting from a growing middle class throughout Asia and rising disposable incomes there. The fund returned 13.57 percent in the second quarter. Credit Jason Henry for The New York Times In a bull market (the current one reached its eighth birthday in March), mutual fund managers can find many ways to win. In the second quarter, three of the better-performing stock funds scored with picks as varied as well-known technology companies, micro-cap stocks and Asian innovators. Fidelity OTC Portfolio Gavin S. Baker, manager of the Fidelity OTC Portfolio, often makes big bets on big names. His fund, for example, had committed about 8.5 percent of its $15.3 billion in assets to Tesla, an electric-car maker, at the end of May. It likewise owned sizable slugs of Apple, Alphabet and Amazon. Those hefty holdings partly spring from the fund’s design: It’s benchmarked against the tech-heavy Nasdaq Composite Index. Thus, to favor a company, as Mr. Baker has with Tesla, his fund must have a greater allocation to the stock than the index does. Tesla accounts for less than 1 percent of the Nasdaq. Mr. Baker aims to identify and exploit enduring technological themes, like the continued growth of e-commerce and cloud computing. Lately, a favorite motif is the emergence of artificial intelligence. “A.I. will change the world in ways we can’t even imagine now,” he said. The fund’s Tesla holding is partly a wager on that belief. Mr. Baker, a Tesla owner himself, said he likes the company not just for the quality of its cars but also for its continuous improvements to its self-driving technology. Many other companies are developing that technology, too, but Mr. Baker is bullish on Tesla’s prospects. Continue reading the main story RELATED COVERAGE Finding Growth in Pizza, Paint and Credit-Card Companies APRIL 15, 2017 Funds That Find Speedsters, Even in a Slow Economy JULY 15, 2016 China’s Growth Doesn’t Ensure Mutual Fund Gains JULY 9, 2011 Emerging Markets, Even in Turmoil, Have a Place in a Portfolio JULY 15, 2016 ADVERTISEMENT Continue reading the main story “In a year or two, we may look back and think it’s funny we focused on Tesla being an electric-car company when they’re building a big competitive advantage in autonomous driving,” he said. Photo Gavin Baker, manager of the Fidelity OTC Portfolio fund, in 2014. He makes big bets on major technology stocks, and he sees artificial intelligence as an emerging trend. “A.I. will change the world in ways we can’t even imagine now,” he said. The fund returned 9.34 percent in the last quarter. Credit Rick Friedman for The New York Times Tesla’s stock has been falling lately, dropping more than 15 percent from a peak on June 23. Mr. Baker said his fund has added to its Tesla position this year, though he wouldn’t comment on whether the fund had bought or sold shares recently. Mr. Baker has managed his fund since 2009. Over that time, he said, he has learned patience: “I appreciate more and more that, in a world dominated by people trading E.T.F.s and quantitative traders and hedge funds, the biggest competitive advantage I have is a long-term time horizon.” Mr. Baker retains an average holding for about two years and will keep favored stocks far longer. Nvidia, for example, has been an overweight in the fund — a larger allocation than in the benchmark — for Mr. Baker’s whole tenure. The fund, with an expense ratio of 0.91 percent, returned 9.34 percent in the second quarter, compared with a total return of 3.09 percent, including dividends, for the Standard & Poor’s 500-stock index.