Stake in Nintendo gives Kalra big edge

Fidelity Investments' Sonu Kalra almost tripled his stake in video-game-maker Nintendo Co. Ltd. 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, company through October, increasing his holding to 4.7 million shares. Nintendo, the fund's largest position, more than doubled on the Osaka exchange in 2007, spurred by sales of the Wii game console.

Kalra, 36, did not like video games until last year, when he saw the Wii at an industry trade exhibition. He bought Nintendo shares before the Wii's release in November 2006. For the last 12 months, 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 is 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 are the best performers of 2007 as financial and consumer-related shares slump.

The Nasdaq composite index, a benchmark for computer-related stocks, has advanced 10 percent this year, twice as much as the broader Standard & Poor's 500 index of large U.S. companies.

"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 Inc., of Chicago.

Kalra, who started managing the OTC fund in January 2005, joined Fidelity as an intern after graduating from the Wharton School in 1998. He became an analyst specializing in technology and media companies before managing the Select Computers Portfolio and the Select Technology Portfolio.

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 do not 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.

Kalra bought 658,000 Nintendo shares in the three months ended September 2006 and added to his stake this year, according to regulatory filings. Nintendo's Japanese shares and American depositary receipts accounted for 9 percent of the fund's assets as of Oct. 31.

Nintendo sold 350,000 Wii consoles in the United States during the week ended Nov. 24, the most since the first days it was for sale 13 months ago. The $249 Wii stands apart from rivals because it enables users to use a wand for games such as tennis and golf. Tokyo-based Sony Corp. cut the PlayStation 3 price by $100 to $499 Oct. 18 and introduced a $399 model last month as sales trailed those of the Wii. Sony's stock has risen 15 percent in 2007.

Apple Inc. is the No. 3 holding in Fidelity OTC. Kalra - who owns the company's first-generation iPod music player that came out in 2001 - started buying Apple shares soon after taking over the fund. Since then, the stock has almost quadrupled. In his collection of Apple gadgets, Kalra also owns the $399 iPhone and $299 iPod touch, which were unveiled this year.

Analysts expect Apple's revenue to increase this quarter as the iPhone debuts in Europe. Mobile-phone partners in the United Kingdom, Germany and France started selling the device this month. In November, China Mobile Ltd., the world's biggest wireless operator, said it was in talks with Apple to sell the iPhone.

Google Inc., which runs the world's most popular Internet search engine, is the fund's second-biggest holding and accounts for 8.5 percent of assets. Google shares have surged 49 percent this year as the company has extended its dominance of Internet searches.

Google said it would create a mobile-phone operating system for handsets sold by Sprint Nextel Corp., T-Mobile USA Inc. and others. The plans would make it easier for consumers to search and download files from the Internet, said Kalra, who said he spends a couple of hours a day surfing the Internet to research new technologies and learn about products.

Manager:

Sonu Kalra.

Assets:

$9.2 billion.

Performance:

Up 24 percent in the last 12 months.

Key holdings:

Nintendo Co. Ltd., Google Inc., Apple Inc.

Ticker:

FOCPX.

SOURCE: Bloomberg News