Midyear Investment Review and Outlook : The Search for Growth : After a rough first half on Wall Street, where are the best profit opportunities in markets now? Here, four mutual fund managers explain their strategies. Interviews by Tom Petruno.

George Vanderheiden

Fund: Fidelity Destiny I, Boston

Category: Growth

First-half return: +0.7%

Avg. growth fund return: -6.0%

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Despite the broad market’s slump, Fidelity’s George Vanderheiden has managed to keep his Destiny I (and clone Destiny II) funds in positive return territory so far this year, thanks to some nimble trading moves.

Now, he’s betting on rebounds in classic big-name growth stocks--and a drop in bond yields--to make better money for his shareholders in the near-term.

Fearing that the market was nearing a speculative peak last winter, Vanderheiden says he began to weed his $4.5-billion portfolio of high-flyers, including auto stocks and other so-called consumer-cyclical issues that were riding Americans’ new spending boom.

In their place he loaded up on what he calls “a lot of dull stocks”--bank, energy, tobacco and utility issues.

Two of those groups, banking and energy, have been among the few strong stock categories since February--a performance that has helped the Destiny funds buck the market slide. Electric utilities, however, were a disaster, Vanderheiden concedes; the double-whammy of rising interest rates and surprise dividend cuts this year has crushed the group.

Still, Vanderheiden believes long-term interest rates are ready to come down again, because he expects the U.S. economy to slow. So he has about 10% of the Destiny portfolios in long-term bonds .

The other beneficiaries of a slower economy, he says, should be classic consumer growth stocks like Wal-Mart, Toys R Us, Philip Morris and Pfizer, all of which he has been adding to his portfolios.

Many classic growth issues have been out of favor for two years, as investors have chased cyclical industrial issues whose earnings were gradually improving with the recovering economy. But if he’s right about the economy slowing, Vanderheiden says, “People will start thinking about assured earnings growth again, rather than cyclical earnings.” Hence, he sees a return to the old standby growth stocks.

At the very least, he says, the plunge in growth stocks’ prices since 1991 has cut the risk in owning them. “You’re seeing some good blue-chip companies whose stocks are pretty decimated,” he says.

He also likes the “story” in some of the technology stocks that have been zapped since spring, including computer networker Cabletron Systems.

Finally, Vanderheiden hasn’t given up on all industrial issues. He still owns Alcoa, for example, betting on a rebound in aluminum prices. But he isn’t interested in playing the Big Three auto stocks for more than a short-term bounce, because he can’t see a big new up cycle in them. The autos “are cheap,” he says, “but where’s the earnings surprise if the industry is already running at 100% of capacity?”