Fidelity Investments, in an FMR Corp. annual report, announced a 40% drop in profits in 2001. Still, the net profits of $1.32 billion represent the second highest for a year in the companys history (2000 was the highest), making the implications of the dramatic drop deceptive.
"Youve got to look at 2000 as being an aberration. At some point, fidelity is going to produce a balance sheet that looks like 2000 again, but that was just off the charts," said John Bonnanzio, editor of Fidelity Insight. He pointed out that 2001 should more fairly be compared to 1999, where the firm netted just over $1 billion in profit.
Furthermore, Fidelitys performance has made noteworthy gains, said Bonnanzio; this year, its funds outperformed 67% of its peers, up from 58% last year.
"[Given the condition of the market] its surprising, if anything, that 2001 was as successful a year as it was," Bonnanzio said.
Net revenues for 2001 fell only 12%, from $11.1 billion in 2000 to $9.8 billion the following year. As Fidelity relies on margin businesses, a relatively small decrease in revenues had a significant impact on profits.
Chairman Edward Johnson III asserted that sinking equity mutual fund assets played a large role in the bottom line, with assets under management dropping 4%, from $919.8 billion at year-end 2000 to $883.4 billion at year-end 2001. Despite a modest drop in overall assets, much of those assets shifted from highly profitable equity funds to thin-margined fixed-income vehicles, concomitantly reducing revenues, Bonnanzio said.
A dip at Fidelity was not unexpected because of earnings results reported by Charles Schwab & Co. earlier this year, Bonnanzio said.