With multiple signals suggesting that stock investors are overestimating the earnings potential of marginally profitable companies, Fidelity Portfolio Manager Tom Williams is favoring businesses that already deliver strong profitability and returns on capital.
“Such companies are even more appealing to me when they generate those returns without relying heavily on debt and when the founder or founding families retain a significant ownership stake,” says Williams, who manages Fidelity® Founders Fund (FIFNX).
The diversified domestic equity strategy seeks founder-led or founder-involved companies Williams believes are mispriced relative to their revenue- and earnings-growth potential. Founders tend to think longer term, have a sizable ownership stake in the company and are highly innovative, often providing differentiated products or services, according to Williams.
He relies on return on capital employed to help assess how effectively a company generates profit from its total capital base, including both equity and debt. A higher ROCE, he explains, suggests that a business is using its capital more effectively to generate profits than its competitors.
Williams believes there are many advantages to active founder involvement, including its ability to dampen principal-agent conflict, as evidenced by how most non-founder, non-family CEOs are compensated. “They’re often incentivized to maximize short-term earnings per share,” he says, “sometimes by underinvesting in sales and marketing, research and development, or by limiting capital expenditures."
In contrast, he notes that owner-managed firms generally avoid this conflict because the owners also run the company. “When they allocate capital, they’re allocating their own money,” he explains. “Moreover, the desire to pass wealth on to the next generation typically results in much longer time horizons than the five-to-seven-year average tenure of a hired CEO.”
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Alphabet (GOOG), the parent of Google and a founder-led company, was the fund’s top holding and sizable overweight as of February 28, 2026, representing more than 7% of assets. According to Williams, the company’s return on capital has accelerated over the past three years. Today, it’s generating roughly a 30% return on its invested capital, a remarkable feat for a business with annual sales approaching $400 billion.
Founder-led firm Monster Beverage (MNST) – another outsized position – began as a maker of fruit juice drinks before expanding into energy drinks and a variety of other beverages. Monster delivered a ROCE of about 30% in the most recent fiscal year, according to Williams, well ahead of the industry average of roughly 18%.
Other illustrative names in the portfolio at the end of February included discount retailer Dollarama (DLMAF), which operates a vast network of dollar stores across Canada; Coca-Cola Consolidated (COKE), a large independent bottler that manufactures, sells and distributes Coca-Cola beverages; and electronic brokerage firm Interactive Brokers (IBKR). All these companies have demonstrated above-average ROCE, according to Williams.
In addition to strong returns on capital, Williams looks for firms with pricing power and robust balance sheets. As he puts it, “A strong balance sheet is critical, not only to potentially withstand exogenous shocks, but to capitalize on them.”
In particular, he seeks companies that repurchase their own shares at attractive valuations, expand into new markets, or acquire equipment on advantageous terms – especially when manufacturers are most eager for orders.
“All of these activities may help support a strong return on capital,” he says. “I think the founders and families represented in the portfolio are well-positioned to make these decisions, since they’re investing their own capital alongside shareholders.”
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Tom Williams is a portfolio manager and research analyst in the Equity division at Fidelity Investments.
In this role, Mr. Williams is responsible for managing Fidelity Founders Fund and FIAM Global Founders. He also researches listed family businesses and runs portfolios based on investing in public firms run and owned by families, founders, and foundations.
Prior to joining Fidelity in 2014, Mr. Williams was a senior vice president at Jefferies and Company and Morgan Stanley focusing on global equities. He was also an officer in the British Army and campaigned in the Middle East, serving as a tank commander and leading long-range desert patrols on the Iraq-Iran border.
Mr. Williams earned his Master of Arts in geography from the University of Cambridge