Fidelity OTC posts big gains with Nintendo

Fidelity Investments' Sonu Kalra almost tripled his stake in video-game maker Nintendo this year, a move that helped him outperform most of his peers.

The manager of the $9.2 billion Fidelity OTC Portfolio bought 3.1 million shares of the Kyoto, Japan-based company (its U.S. division, Nintendo of America, is based in Redmond) through October, increasing his holding to 4.7 million shares.

Nintendo, the fund's largest position (followed by Google and Apple), more than doubled on the Osaka exchange in 2007, spurred by sales of the Wii game console.

Kalra bought Nintendo shares before the Wii's release in November 2006. This year, through Dec. 4, his fund rose 24 percent to rank 12th of 175 growth mutual funds tracked by Bloomberg with at least $500 million of assets.

"The video-game market had really stagnated," Kalra said in an interview at his office in Boston. "Nintendo was able to put new players like myself in the mix who had been too afraid to play video games because they're too complicated."

Kalra was posting the biggest gains in his three years of running the fund, which has two-thirds of its assets in technology companies. Fidelity OTC Portfolio rose 9.5 percent last year and 8.9 percent in 2005. Technology stocks have been the best performers of 2007 as financial and consumer-related shares slumped.

"Technology stocks have been among the strongest performers this year, and the OTC fund was nicely positioned to take advantage of that," said John Bonnanzio, group editor of the Fidelity Insight independent newsletter in Wellesley, Mass.

The average Fidelity mutual fund, including stock and bond products, has outperformed 55 percent of competitors, according to data compiled by Morningstar.

OTC Portfolio was started at the end of 1984 to invest at least 80 percent of its assets in Nasdaq and over-the-counter stocks, which typically are small companies that don't meet the listing requirements of the bigger exchanges. As assets ballooned, the fund invested in larger stocks.

The average market value of companies in the fund was $27 billion as of Oct. 31, according to Morningstar.

Fidelity OTC's overall Morningstar rating is three out of five stars. The fund has a three-year Sharpe ratio of 1.18, compared with 0.93 for competing funds. A higher Sharpe ratio indicates better risk-adjusted returns.