After faring a stormy sea in 2005, Fidelity Investments, the Boston-based mutual fund giant that turns 60 this year, is working hard to keep investor confidence on course, the Associated Press reports.
"Investors tend to think that as the flagship fund goes, so goes the rest of the fleet," said Jim Lowell, editor of the independent newsletter Fidelity Investor and a former Fidelity employee. And Fidelity's flagship Magellan Fund had a bad year in 2005. With sub-par performance, competitors surpassed the former market-leader in terms of returns and assets under management.
Magellan's poor performance coincides with a Federal investigation into claims several traders steered customers to brokerage houses that lavished them with gifts, rather than those that might best suit the investors themselves. Facing civil and criminal penalties,
Fidelity disciplined 12 employees, and five others have resigned.
In response, Fidelity has hired more investment analysts and moved key money managers around.
The new strategy seems to be working. In the third quarter, earnings rose 26% above the same period in 2004, breaking a company record. "It has been a very, very good year," said Chief Operating Officer Robert Reynolds. In addition, enterprises outside of Fidelity's core mutual fund business have grown, including Fidelity's IRA and employee benefit management services. In order to lure retiring Baby Boomers looking for places to invest their 401(k) cash-outs, Fidelity has launched an advertising campaign featuring former Beatles front-man, Paul McCartney.
Fidelity Contrafund, currently the company's largest fund, yielded impressive returns this past year, as have some of Fidelity's bond and international funds. Fidelity's second-largest and storm-weathered Magellan Fund outperformed all but 39 percent of its class in 2005, reversing the three-year trend of being beaten by 71% of its rivals, Morningstar data demonstrates.
Not all of Fidelity's funds are doing well, though. Performance of the Growth & Income Fund ranks among the bottom 15% for the past 12 months, while 92% of the funds in its class did better, when compared over a three-year span.
Low-cost index funds and exchange-traded funds continued to threaten Fidelity. In 2004, the Vanguard Group surpassed Fidelity as the top manager of stock and bond funds, excluding money market funds. But Reynolds expects that to reverse, as small-cap funds fade from the forefront and the cycle returns to large-cap funds' favor.
Fidelity has also rearranged some of its top management. Abigail Johnson, the company's largest shareholder and daughter of Fidelity Chairman and CEO Edward C. Johnson III, recently left her role overseeing the company's mutual fund business to manage retirement benefits, instead. And Harry Lange replaced Robert Stansky as Magellan Fund's manager, applying a more aggressive growth-fund-focused style.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.