Brian Hogan is president of Fidelity Investments' equity division, overseeing $850 billion in assets. He discusses Fidelity's outlook for 2014, seeing earnings growth of around 7-8% resulting in around a 10% return for the S&P 500 before factoring in changes to its price/earnings multiple. Hogan believes active managers will have an advantage in the next 3-4 years as correlations between stocks decrease, making it more of a "stock picker's market." He cites several standout Fidelity portfolio managers who have outperformed benchmarks by wide margins for decades.

1. TraderPlanet Digital Journal 32 TraderPlanet Digital Journal
“They do not get emotionally
involved with a name. They
are very open minded. That
is one of the characteristics
of a successful portfolio
manager —because things
change, industries change and
the dynamics of an industry
change.”
A 20-year veteran at Fidelity, Brian
Hogan is president of the equity division
at Fidelity Investments. He oversees 500
employees and is responsible for the management of
$850 billion in assets. Hogan has been in this role since
April 2009 and he oversees the portfolio management,
research and trading functions within FMRCo’s equity
and high income divisions. We spoke with Hogan in late
March for a peek inside at the inner workings of Fidelity.
“They do not get emotionally
involved with a name. They
are very open minded. That
is one of the characteristics
of a successful portfolio
manager —because things
change, industries change and
the dynamics of an industry
change.”
A Peek Inside the Inner Workings At Fidelity
By Kira Brecht

2. 4 TraderPlanet Digital Journal
TP: What did you learn from that?
Hogan: I witnessed the importance of
currency impact on the financial health
of companies and the importance of
understanding how companies fund
themselves. Also, the need to identify
balance sheet risks and to ensure I
understand those risks as an analyst and
portfolio manager.
TP: What is your market outlook for 2014?
Hogan: We have a constructive outlook
over the next several years, not just 2014.
AtFidelity,wehaveamantra:stocksfollow
earnings. We have 134 fundamental
research analysts at Fidelity. We cover
2400 stocks, including the entire S&P
500. Every month, I get a report that
shows what our analysts think the S&P in
aggregate, will earn for the current year
as well as the next couple of years. As
you can imagine, we are constantly fine
tuning our estimates.
TP: Where do you see the earnings growth
rate for this year?
Hogan: We see the earnings growth
rate around 7-8%. One of the things
that factors into that growth rate are the
approximate 1-2% in share repurchases
beingdoneacrosstheboardbycorporate
America. For the sake of the discussion,
we’ll call it 8% earnings growth for this
year. In addition, the dividend yield on
the S&P 500 is around 2%, thus, I expect
about a 10% return for the S&P this year
before factoring in multiple expansion
or contraction.
TP: Do you see the price/earnings multiple
expanding, contracting or will it stay the
same?
Hogan:In2013,theearningsgrowthwas
7-8%,buttheS&Pdelivereda32%return.
The 2% dividend yield helped but the
key in 2013 was the significant multiple
expansion that took place. I don’t think
that type of multiple expansion is likely
thisyear.Youcouldmakethecaseitcould
expand a little or contract a little. But,
because of concerns globally that range
from the Russian-Ukrainian situation, the
challenging regulatory environment in
Washington, to China slowing down and
its impact on Asia —all of those things
weigh on the market and might tend
to dampen the overall multiple of the
market.
TP: What role does technical analysis play
at Fidelity?
Hogan: We are fortunate to have the
resources to employ fundamental,
quantitative and technical analysts. A
fundamental analyst might cover 20, 30,
40 stocks— as they meet with company
management teams, build earning
models, meet with customers, suppliers
and do unique and proprietary research.
TraderPlanet: How did you first become
interested in the financial markets?
Hogan: My father introduced me to the
markets. He was a part-time investor; he
liked to dabble in the stock market. But,
it wasn’t until after college and going
to business school that I realized it was
the career for me. I saw the opportunity
to do something and have it be very
relevant and impactful. I was fascinated
by markets and I liked the opportunity to
match wits against other investors.
TP: What is the most significant market
event you experienced in your career?
Hogan: The first significant event was
the December 1994 devaluation of the
Mexican peso. I saw firsthand the impact
that a country’s exchange rate can have
on the financial health of not only the
country, but individual companies.There
were Mexican companies that were
borrowing in dollars, and generating
revenues in pesos. When the peso
devalued, their dollar liabilities were
magnified in peso terms. It really put
some stress on those companies.
Fidelity® Low-Priced Stock Fund (FLPSX)

3. Technical analysts have a different
role. Our technical analysts study price
patterns of large groups of stocks and
have the capacity to cover hundreds
of stocks. They look for clues in the
historical price patterns to glean insights
on what supply/demand and technical
price patterns are telling us.
TP: What are the key drivers of success for
Fidelity’s equity funds’ strong performance
over the past five years, since you have
been in your current role?
Hogan: We have some of the best
portfolio managers in the industry.There
are several key things that make them
successful. They are long term investors
and invest with a longer-term time
horizon than a lot of other investment
managers do. They do significant due
diligence on the companies they invest
in. We have, on average, 17 companies
a day that come through our offices
for investment meetings. We meet
with their customers, competitors,
and suppliers. Our portfolio managers
utilize broad research from our 134
fundamental analysts. Also, they are very
passionate about their jobs, but they are
dispassionate about individual stocks.
They don’t fall in love. They do not get
emotionally involved with a name. They
are very open minded.That is one of the
characteristics of a successful portfolio
manager —because things change,
industries change and the dynamics of
an industry change. New companies
emerge.
TP: Who are some of your standout
portfolio managers?
Hogan: Joel Tillinghast started the
Low-Priced Stock Fund (FLPSX) 24 years
ago and he’s beaten his benchmark by
approximately 480 basis points per year
for 24 years. Will Danoff has managed
the Contrafund for 23 years and has
beaten the S&P 500 by about 340 basis
points per year for 23 years; these are
all net of fees. Steve Wymer manager
of the Fidelity Growth Company fund
has beaten his benchmark by 380 basis
points net, per year for 17 years.
TP: Do you see active management
gaining favor ahead, versus passive
products like index ETFs?
Hogan: I do think there is room in a
portfolio for both active and passive
investments.Rightnow,weareinagood
environment for active management.
Last spring when then Fed Chairman
Ben Bernanke talked publicly about
tapering and the end of quantitative
easing, it caused a little dislocation over
the next few months in the Treasury
market. The 10-year Treasury yield had
been around 1.70% and it moved closer
to 3.00%. Now, it is around 2.70%. What
happened in the equity market is that
correlations began to decrease and it
became fertile ground for stock picking.
Now, I would call it much more of a stock
picker’s market. Correlations are lower
and there are a lot more variables in
stock returns. My sense is with history as
a guide, the next three to four years will
be a period where active managers have
a tailwind. These things run in cycles.
“Now, I would call it much more of a stock picker’s market. Correlations
are lower and there are a lot more variables in stock returns. My sense
is with history as a guide, the next three to four years will be a period
where active managers have a tailwind. These things run in cycles.”
Fidelity® Contrafund (FCNTX)

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TP: Looking back at market history, what
can we learn from it?
Hogan: One of the most important
lessons I’ve learned from working at
Fidelity for 20 years is that starting points
matter. At the end of 1999, the forward
price-to-earnings multiple was 26.Today,
it is 15 1/2. Yet, earnings have more than
doubled. Thus, over the last 13-14 years,
while earnings have more than doubled,
valuations have been cut in half. I also
think that stocks are attractive relative to
other asset classes. Bonds have been in
a bull market for more than 30 years and
that may soon be ending. More recently,
in 1999, the 10-year Treasury yield stood
at 6.5%.Today it is at 2.7%.With the stock
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market yielding 6 1/2% versus the bond
market yield at 2.7%, it argues that stocks
look pretty good.
TP: What advice would you give to retail
investors today?
Hogan: Take a long-term view when
investing. Investors have a tendency to
be more excited when stocks are going
up and less excited to buy when stocks
are going down. If you have a long-term
view you can take advantage of those
dislocations to buy.
TP: Thank you for sharing your insights.
“One of the most important lessons I’ve learned from working at Fidelity
for 20 years is that starting points matter.”
Fidelity® Growth Company Fund (FCNTX)