BOSTON (Reuters) – Juul Labs Inc has turn out to be one the most important bets within the portfolio of Fidelity’s $28 billion Blue Chip Growth Fund, whose publicity to the troubled e-cigarette maker has climbed to $761 million amid a regulatory backlash and departure of its prime government.
Signage for Juul vaping merchandise is seen on a storefront in New York City, U.S., September 9, 2019. REUTERS/Andrew Kelly
Fidelity Blue Chip Growth Fund’s (FBGKX.O) supervisor Sonu Kalra had 2.7% of the enormous fund’s property invested in Juul as of July 31, the most recent fund disclosures present, up from 1.7% of property a 12 months earlier.
Although Juul stays privately held, some Fidelity funds have made a observe of taking stakes in pre-IPO firms which have paid off big once they go public.
But the tactic may put Fidelity fund holders into unstable conditions just like the one at rideshare chief Uber Technologies Inc (UBER.N), which is buying and selling effectively under its IPO worth in May.
Juul is the most recent instance of pre-IPO drama. On Wednesday the corporate’s CEO stepped down as merger talks between its greatest investor Altria Group Inc (MO.N) and Philip Morris International Inc (PM.N) collapsed within the face of a regulatory backlash in opposition to vaping.
Products made by Juul and others vaporize liquid containing nicotine. While they may help individuals give up smoking, the corporate faces a U.S. ban on some merchandise and issues about diseases linked to vaping.
Flavored e-cigarettes signify 80% of Juul’s gross sales. The U.S. Food and Drug Administration’s plan to drag all e-cig flavors from the market, together with bans in some markets already, have pushed Juul’s valuation all the way down to about $25 billion, from $38 billion when Altria invested in it, based on Morgan Stanley.
A spokesman for Boston-based Fidelity declined to remark. Fidelity’s Kalra acknowledged scrutiny of Juul from regulators however wrote that “Juul’s success in penetrating the U.S. market and continuing to grow its sales and earnings supported a higher valuation for this position,” based on a notice to traders dated July 31.
John Bonnanzio, an editor of impartial e-newsletter Fidelity Monitor & Insight, mentioned the Juul stake has turn out to be dangerous however managers could also be tempted by the possibility to ship outsize returns to assist beat their benchmark and rival index funds.
Some managers have determined, “You can’t beat the index without investing outside of it,” Bonnanzio mentioned.
Blue Chip Growth’s three-year common annual return of 17.1% is healthier than 79% of peer large cap development funds, based on Morningstar Inc.
Reporting by Ross Kerber and Tim McLaughlin in Boston; Editing by Tom Brown