BOSTON - Fidelity Investments is losing its thirst for adventure.
After riding the now-beached technology wave for all it was worth, the world's largest mutual fund company is charting a course into decidedly calmer waters.
In the chaotic third quarter, the closely held Boston company cut its stake in such once-high-flying stocks as EMC Corp. and eBay Inc. and snapped up shares of relatively safer stocks such as consumer-goods maker Sara Lee Corp. and electronics retailer Circuit City Stores Inc.
While Fidelity isn't abandoning technology - troubled telecom equipment maker Lucent Technologies Inc. ranked high on its shopping list last quarter - recent filings with securities regulators reveal a company that certainly isn't feasting on the current crop of downtrodden technology stocks.
The filings also reveal a group of managers who are not moving in tandem and are sometimes making big bets on a wide variety of stocks - something few dared to do when shares in technology companies were shooting the lights out.
Return to roots
Fidelity managers "are simply not betting the ranch on technology being the single lever that will drive the market higher going forward," said James Lowell, who publishes Fidelity Investor, an independent newsletter based in Potomac, Md.
"Instead, they seem to actually be returning to their more traditional roots in terms of the stocks they are focusing on these days," added Mr. Lowell, who analyzed the SEC filings.
Scott Cooley, an analyst at Morningstar Inc. in Chicago, points out that many Fidelity managers actually have underweighted their portfolios in technology relative to their benchmarks.
"They are keeping enough of a position that they won't get left in the dust if the market suddenly rebounds," he said.
But the shift in strategy might reflect the beginning of something even more profound: a change in an investment mindset at Fidelity, sparked by new leadership within the fund group.
In June, Abigail P. Johnson, daughter of Fidelity Chairman Edward "Ned" C. Johnson III, took over as president of Fidelity Management & Research Co., the company's fund group. She took the reins from Robert Pozen, who had been running Fidelity's fund business since 1997 and is generally credited with lowering manager turnover and improving the funds' overall performance.
Mr. Pozen, who was named to President Bush's commission on Social Security and is vice chairman of Fidelity, earned a reputation for holding Fidelity's managers on a very short leash. During his watch, managers were discouraged from making huge sector bets or from keeping large amounts of their portfolios in cash.
While it's unlikely Ms. Johnson has given managers total autonomy over the funds for which they are responsible, she probably has loosened their reins a bit. Unlike Mr. Pozen, Ms. Johnson is viewed as mild-mannered and likely to defer to the judgment of Fidelity's managers rather than impose strict rules around trading - not unlike her father did when he served as Fidelity's president from 1972 to 1977.
A spokesman for Fidelity declined to comment on its managers' stock picks.
But filings show that from June 30 to Sept. 30, Fidelity's fund group dumped 46.5 million shares of EMC, a data storage company in Hopkinton, Mass., reducing its stake to 17.6 million shares. EMC's shares declined 61.6% during the quarter vs. a 15.8% decline in the Standard & Poor's 500 index.
The group also sold off 2.3 million shares of San Jose, Calif.-based eBay, lowering its total stake in the Internet auctioneer to 1.2 million shares. The company's shares dropped 32.8% during the quarter.
Fidelity's managers also sold significant stakes in such companies as Immunex Corp. a Seattle biopharmaceutical company, and semiconductor manufacturer Novellus Systems Inc. in San Jose, Calif.
The managers also gave a big thumb down on the proposed $23 billion merger of Hewlett-Packard Co. and Compaq Computer Corp. The filings show they reduced stakes in Compaq by 58% to 17.2 million shares and in Hewlett-Packard by 53.1% to 17 million shares.
The Hewlett-Compaq deal is facing opposition from members of the founding Hewlett and Packard families, who feel a merger is too complicated and would hurt shareholders.
Despite gobbling shares of Lucent, Fidelity managers also expressed their pessimism about the badly beaten telecommunications sector. The group cut its stake in Nortel Networks Corp., the optical networking giant, by 80% to 11.8 million shares. Its ownership of ADC Telecommunications, fell 70% to 2.1 million shares.
The fund group purchased 5.3 million shares of Sara Lee, upping its stake more than eightfold. Those shares jumped 9.3% during the quarter.
Despite dropping 32% in value, Fidelity's managers increased their stake in Circuit City by 289% to 7.4 million shares during the third quarter.
They also made sizable purchases of DaimlerChrysler AG, RadioShack Corp. and Harley-Davidson Inc.