When Fidelity recently announced that its assets under management grew 9% since the end of 2008 to $1.4 trillion and that its market share, already formidable at 11.7%, has now topped 12.4%, pundits scoffed that it was Fidelity's money market funds that drove this growth.
Those funds are no folly, and that growth was quite deliberate.
Throughout 2008 as the market tanked and investment managers' assets declined 40% or worse, CEOs and CIOs told investors to stay the course and to sagaciously take heart in the historical performance of the stock market.
Fidelity joined that august chorus, but added another strategic wrinkle. The fund giant never went against the industry's traditional buy-and-hold mantra, but rather than stand idly by and watch its customers' fortunes disappear, it did ask investors to revisit their risk tolerance. It reminded them of its storied name and 63 years of business. It offered investors budget advice and promoted the idea of saving. And it aggressively marketed its money market funds, even certificates of deposit-a first for a mutual fund company.
Thus, by touting its longstanding stability and trusted brand name amid the worst market returns since the 1930s and gently nudging investors to reassess their true tolerance for risk, Fidelity succeeded in steering investors to its money market funds.
In fact, $521 billion, or nearly 40% of the $1.358 trillion that Fidelity has under management, is in money funds, more than double the money fund assets it managed in 2005. Fidelity's biggest money fund, Fidelity Cash Reserves, has $138 billion under management, nearly three times the $52 billion that Contrafund, its biggest equity mutual fund, boasts.
True enough, the margin on money market funds is low to begin with, and now in negative territory for fund companies assuming the fees to make up for low yields, but even if Fidelity cannibalized its equity fund business to shift assets to its money funds, at least its customers have held onto a decent portion of their portfolios.
That gives them reason to celebrate and to congratulate Fidelity with their continued business once the market turns around.
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