Fidelity‘s bets on unicorn companies, the rare private firm or startup that grows in value to at least $1 billion, put a dent in the stellar performance of some of the company’s most popular mutual funds during the first half of 2017.
Fidelity has stepped up disclosure of how pre-IPO companies affect mutual fund performance. This week, for example, Boston-based Fidelity Investments showed how content-sharing company Pinterest had an outsize impact on the portfolio performance of its most popular stock fund.
Pre-IPO investments can amplify a fund’s relative performance because they are not included in a comparison benchmark index. And the valuations attached to them by Fidelity and other mutual fund companies have far outpaced the stock market.
Fidelity‘s $114 billion Contrafund disclosed that its small stake in Pinterest shaved 9 basis points off the fund’s relative return versus the S&P 500 Index. Contrafund’s Series E stake in Pinterest was valued at $473.3 million in the first quarter. But at the end of May, that value was marked down by 17%, Fidelity disclosures showed.
Fidelity was not available for comment. But Pinterest was tied with TJX as Contrafund’s largest detractor in the second quarter, even though the pre-IPO company accounted for only 0.34% of the fund’s net assets.
Contrafund, which is run by star Fidelity portfolio manager Will Danoff, posted a total second-quarter return of 6.09% in the second quarter, easily beating the 3.09% total return on the S&P 500 Index.
The fund’s year-to-date return of 19.84% is better than 75% of U.S. Large-cap growth mutual funds, according to Morningstar data.
Fidelity‘s valuation of Contrafund’s Series E stake in Pinterest has more than doubled since an initial investment of $159.4 million in October 2013, compared to Nasdaq’s 62% rise.
While Pinterest is a relative pipsqueak in the massive Contrafund portfolio, other Fidelity managers have made tech unicorns some of their largest holdings.
At the end of May, ride-hailing company Uber was a top 20 stock in Fidelity‘s $22 billion Blue Chip Growth Fund. The fund’s Series D stake in Uber was valued at $251.5 million, or 1.14% of net assets.
Portfolio manager Sonu Kalra’s Uber stake is bigger than his bet on Starbucks Corp ($202 million) and Bank of America ($157 million).
In the first quarter, Uber was among the fund’s largest detractors, shaving 12 basis points off the fund’s relative return. Only Qualcomm and Lululemon detracted more.