ENGLEWOOD, Colo. - With over $442 billion in assets under management, Fidelity Investments has become the financial markets' proverbial 800-pound gorilla. But Fidelity has an 800-pound gorilla of its own to contend with, a little-known investment outfit in Englewood.
With a modest $535 million in assets under management, Meridian Management & Research Corp. often finds itself the No. 1 shareholder in various sector funds. Just as sector shifts by Fidelity's Magellan mutual fund have the potential to impact whole industry groups, Chief Investment Officer Craig Callahan's moves can turn a given Fidelity sector fund upside-down.
For instance, he currently has $40 million in the Fidelity Select Electronics fund, which has $1.175 billion in assets.
Not surprisingly, he said Fidelity and other fund companies "have gotten more sensitive to the investment adviser market in the last year. They weren't before. The whole financial service industry is becoming aware that financial planners and registered investment advisers are an industry."
In the Electronics fund, "there are 3,500 individual investors under our discretion and they vote proxies."
Sector bets are all Mr. Callahan makes, and they are often significant.
After sticking with the home finance area for a year, the firm early May liquidated its entire position in the sector, which was 16% of a $270 million portfolio.
Meridian times sector shifts using a valuation equation based on the research of legendary value investor Benjamin Graham.
Mr. Callahan only picks individual stocks for his largest accounts, those with a minimum of $1 million.
In the majority of cases, he invests in a basket of sector mutual funds on behalf of high-net-worth individuals and small institutional clients.
Meridian is offered as an investment option in defined contribution plans of the University of Denver and the Northern California Emergency Room Physicians.
In addition to Fidelity, it uses country funds offered by Wright Investors and sector funds offered by INVESCO Funds Group. It has even teamed up with INVESCO to subadvise a variable annuity for Western Reserve Life Insurance Co.
In the product, to be named Meridian/INVESCO Sector Variable Annuity, Meridian will pick the sectors and INVESCO will pick the stocks within the sectors.
"We don't think there's much of a small-cap/large-cap effect. There's more of an industry effect," Mr. Callahan said.
In another recent sector shift, on Jan. 12 he moved back into technology stocks, which had lagged the market since the fall of 1995.
He has 35% in technology stocks spread among two to three sectors. "We won't add to that. We hold positions on average over a year to two years. Every six months we replace one or two sectors."
Mr. Callahan's maximum allocation to a sector is 15% to 20% of a portfolio.
Meridian's tactical sector allocation portfolios are up 7.6% for the year through April 30, compared with the Standard & Poor's 500 Stock Index's 4.8%.
