Originally published on November 7, 2014
Certain funds from T. Rowe Price Group, Inc. (NASDAQ:TROW) and Fidelity Investments must thank Alibaba Group Holding Limited (NYSE:BABA) for its recent uptrend. According to recent fund disclosures, T. Rowe Price Growth Stock (MUTF:PRGFX), T. Rowe Price Emerging Markets Stock (MUTF:PRMSX), Fidelity Contrafund (MUTF:FCNTX) and Fidelity Diversified International (MUTF:FDIVX) hold the largest shares of Alibaba Group. In line with Alibaba’s record initial public offering in September and the stock’s uptrend, these funds have gained too.
Alibaba Preferred Mutual Funds?
Alibaba lapped up over $21.8 billion on its debut on the New York Stock Exchange in September. However, the country’s biggest IPO was not devoid of certain allegations. The allegations were that the Chinese e-commerce giant snubbed hedge funds and favored mutual funds.
A CNBC report had claimed that hedge funds were allotted substantially lower amount of shares than what they requested. The CNBC article alleged an “ultra-selective process that favored investors who already have a close relationship with the company.”
Terming the allocation as “pathetic” a particular hedge fund manager said his fund had requested for $200 million in Alibaba shares but received not even a million worth of shares. The same report mentioned that a person familiar with the matter had said that “Investors with the longest relationship with the company tended to receive the best treatment.”
Mutual Benefit for Funds & Alibaba
Reports suggested Fidelity, BlackRock (NYSE:BLK) and T. Rowe Price Group were among the big institutional players asking for the largest allocations. Each of these firms were said to have asked for over $1 billion of shares. Alibaba had also raised the top end of the fundraising target, lower than what advisers proposed.
Attractive valuation of Alibaba attracted the mutual funds. Separately, Alibaba itself too had reasons to opt for mutual fund houses.
Mutual funds scored over hedge funds as the former is heavily regulated and have to make more disclosures. Hedged funds can add or shed positions rapidly. A Bloomberg report noted:
Heavy demand from the biggest mutual funds, which take a long-term view and can place larger orders, would give Alibaba the confidence to push for a higher price or to sell more shares.
Largest Holders Enjoy Uptrend
As said, funds from T. Rowe and Fidelity have been enjoying improving trends as they are the largest holders of Alibaba shares. Let’s look at each of these funds, their Zacks Mutual Fund Rank and how have they been performing.
T. Rowe Price Growth Stock (PRGFX) is the largest single holder among mutual funds with ownership of over 6 million Alibaba shares as of Sep 30, equating to over $610 million worth of shares. With total assets of about $43 billion, the fund has been able to cash in on Alibaba’s success and outperformed 91% of its peers in the last one month period.
T. Rowe Price Growth Stock seeks capital appreciation over the long term. It invests most of its assets in various growth companies and seeks to invest in large-cap firms. The fund focuses on US common stocks but may also invest in non-US stocks in line with the fund’s strategy.
The fund has returned about 2.6% in the past four weeks. Moreover, the fund also boasts decent gains of 7.1%, 13.6% and 19.6% over year-to-date, 1-year and 3-year periods.
The fund currently carries a Zacks Mutual Fund Rank #2 (Buy).
Fidelity Contrafund (FCNTX) is the second biggest holder, after buying 3.23 million Alibaba shares. This fund has total asset worth $108.5 billion and seeks capital growth. The fund invests in stocks whose value is not yet completely recognized by the public. The fund invests in value and growth stocks.
The fund has returned 1.4% in the past four weeks. Moreover, the fund also boasts decent gains of 7.6%, 13.1% and 17.8% over year-to-date, 1-year and 3-year periods.
The fund currently carries a Zacks Mutual Fund Rank #3 (Hold).
Also from the Fidelity family, Fidelity Diversified International (FDIVX) is the third largest holder of Alibaba shares. This fund has 3 million shares of Alibaba. The fund website also attributed Alibaba’s “extremely successful initial public offering” to be a driving force behind the fund’s recent performance. The fund lost 5.02% in quarter ending Sep 30. However, that was narrower than MSCI EAFE Index’s loss of 5.87%. FDIVX mostly invests in foreign securities and diversifies assets across different countries.
The fund has returned 1.7% in the past four weeks. That is an improvement from its year-to date loss of 2.3%. Over the last 1 and 3-year periods, the fund has gained 3% and 11.5%, respectively.
The fund currently carries a Zacks Mutual Fund Rank #4 (Sell).
T. Rowe Price Emerging Markets Stock (PRMSX) is the fourth-largest holder. The fund bought 937,174 shares of Alibaba. It was said to be the fund’s largest third-quarter purchase. The fund invests most of its assets in emerging market firms, irrespective of their market capital.
The fund has returned 1.9% in the past four weeks. Moreover, the fund also boasts decent gains of 5.9%, 4.1% and 3.6% over year-to-date, 1-year and 3-year periods.
The fund currently carries a Zacks Mutual Fund Rank #1 (Strong Buy).
About Zacks Mutual Fund Rank
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