Fidelity has injected extra flexibility and personalization into its variable annuities, and is trying to sell its customers on virtually nonexistent tax penalties.
By adding three new funds -- a real estate, a dynamic capital appreciation and a value strategies portfolio -- Fidelity's annuities offer greater diversification and a better opportunity to capitalize on market changes.
Beginning last September, Fidelity offered the new funds within its "Variable Insurance Product" (VIP) annuity. Before September, all three, each a recent addition to the Boston fund giant's stable, were stand-alone products. While the annuities offer the opportunity to invest in the three funds without immediate tax consequences, investing in each outside of the annuity would likely result in huge tax charges.
The VIP real estate portfolio attempts to take advantage of that sector's tendency to not follow the trends of the stock and bond markets. In a time of sometimes steady, sometimes turbulent market recovery, real estate has shown to pump steady returns into customer accounts without forcing investors into riskier stocks and bonds, according to marketing materials from Fidelity.
Managed by 12-year Fidelity veteran Steven Buller, who has 17 years experience in managing real estate funds, the VIP real estate portfolio's best attribute, according to the company, is that it is part of a tax-deferred annuity. But Buller says it was much more than that.
"Real estate is a unique asset class, and for that reason it can be a valuable diversifier to equity and bond holdings," he said in a shareholder newsletter sent to Fidelity annuity holders in February. The real estate portfolio has been available individually to Fidelity customers since November 2002, but never before inside of its variable annuities.
According to industry consultant Geoff Bobroff, based out of East Greenwich, R.I., time may have run out on the real estate boom. "That was a hot sector but I'm not sure that it hasn't already overplayed itself," Bobroff said.
The dynamic capital appreciation is a growth product that Fidelity maintains will capitalize on stocks with high chances of short-term success, no matter what sector they exist in. Portfolio Manager John Porter and his team seek out stocks of all sizes and sectors, and have been managing the portfolio as a stand-alone product since September 2000.
The value strategies portfolio, which was born in February 2002, will invest in small- and mid-cap value companies, and emphasize undervalued stocks. Said Harris Leviton, manager of the value strategies portfolio: "Some value managers buy anything that is cheap. I look for cheap with a catalyst. It takes more than a low price to get me excited about a company."
While these offerings sound rather offbeat and ahead of the curve, according to Bobroff, placing these offerings into the tax-deferred annuities do not represent Fidelity jumping ahead of the field. "They are focused on building out a product line based on where they're seeing some retail demand in the marketplace," he said.
Bobroff said that beside the obvious, like the need for Fidelity to appeal to both its own customers and the third parties that make up half its client base, he sees no specific reasons why the new offerings should be considered cutting edge in the annuity industry.
"The marketplace isn't necessarily clamoring for it," he said.
Copyright 2004 Thomson Media Inc. All Rights Reserved.