A case for sticking with tech and health care

Steve DuFour makes an argument for why tech and health care firms could continue to thrive.

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"I'm very aware of the sharp contraction in US economic growth, and I think many of the companies that have shown some resiliency could make a full recovery in time," says Steve DuFour, portfolio manager of Fidelity® Focused Stock Fund (FTQGX).

DuFour believes the line between companies that are thriving and those that are suffering has never been more stark. He considers this a plus for his strategy of bottom-up stock picking for this concentrated portfolio, which normally invests in 40 to 60 stocks.

DuFour largely has avoided companies in the commodity chemicals, energy, travel, and automobile manufacturing industries. He thinks each could take years to recover.

Instead, he's continued to favor companies with exposure to electronic payments, the internet, and digital technology, many of which have seen accelerated adoption during the pandemic.

About 43% of the fund was invested in information technology as of the end of May, he says, and top holdings in this sector included Microsoft (MSFT), Mastercard (MA), and Visa (V), as well as graphics chipmaker Nvidia (NVDA) and Square (SQ), an electronic payments processor targeting small and mid-size businesses.

At the same time, the fund had about 16% of assets in health care, including large stakes in health insurer UnitedHealth Group (UNH) and pharmaceuticals company Eli Lilly (LLY). DuFour thinks many health care companies could benefit as elective surgeries return to regular schedules.

"I think it's important in this shifting environment to remain flexible," DuFour adds. "To that end, I'm also searching for ways to benefit from a cyclical recovery in the economy and looking at stocks based on my expectations for earnings in the years ahead."

Fidelity® Focused Stock Fund held securities mentioned in this article on May 31, 2020. As of this date, these companies accounted for the following percentages of fund assets: Microsoft, 6.66%; Mastercard, 4.88%; Visa, 4.32%; Nvidia, 4.93%; Square, 4.94%; UnitedHealth Group, 4.74%; and Eli Lilly, 3.12%.

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