Fidelity Investments' changes in its high-level management structure may have the welcome effect of upgrading the quality of analyst research, according to a report by Russ Kinnel, director of mutual fund research for Morningstar. The decision came as the result of sluggish performance in some of the company's domestic equity funds, with the structure of the research analyst unit playing a significant role, Kinnel opined.
Vice-Chairman and COO Robert L. Reynolds told Kinnel that the executive restructuring may also be part of a larger effort to boost fund performance. "Indeed, Reynolds indicated in a meeting with me that the firm is thinking seriously about how to upgrade its research effort," Kinnel wrote.
Traditionally, the company would hire fresh MBAs with a chance of becoming fund managers after completing one to two-year rotation program, where the new hires are assigned to cover different market sectors. The time frame is often believed to be not sufficient enough to match up the level of analyst covering the same industries for five years at different firms.
This plus the high turnover rate created as the result of the setup are blamed for the flaws in the produced research. Reynolds' goal is to strengthen the research unit by hiring experienced analysts and creating the career analyst positions, which is usually done by many other fund companies.
"I wouldn't argue these changes will make an immediate contribution. In fact, it's hard to imagine their effects will be seen for at least three years. They've got to hire the analysts, build the senior analyst career path, and show that these are more than token efforts at change," Kinnel said.
As the result of the changes, Fidelity will be structured more like its peers, with one effect being that the burden of performance will shift from a difference of internal structure to one of execution.