Despite the improved performance of its mutual funds, Fidelity Investments isn't likely to recapture the crown as the firm that controls the most long-term-fund assets anytime soon.
Despite the improved performance of its mutual funds, Fidelity Investments isn't likely to recapture the crown as the firm that controls the most long-term-fund assets anytime soon.
Boston-based Fidelity ranked third with $611.96 billion at the end of June, behind The Vanguard Group Inc. of Malvern, Pa., with $844.9 billion, and American Funds, advised by Capital Research and Management Inc. of Los Angeles, with $768.9 billion, according to the most recent data from Financial Research Corp. of Boston.
Money market funds are ex-cluded from the totals, but if they were included, Fidelity would rank second in total fund assets, with $1.12 trillion at the end of June, ahead of American Funds, with $800 billion, but trailing Vanguard, with $1.13 trillion, according to Strategic Insight Mutual Fund Research and Consulting LLC of New York.
Money funds, however, are viewed by many investors as commodities in which they can park cash for brief periods. They aren't considered the foundation of a fund group's reputation, which depends on the performance of its long-term funds.
The last time Fidelity finished the year with the most long-term-fund assets was 2003, when it ended with $593.9 billion, followed by Vanguard at $584.1 billion and American Funds at $485 billion, according to FRC.
PERFORMANCE ISSUES
Fidelity's fall from No. 1 in long-term-fund assets can be blamed on performance, said Russel Kinnel, director of mutual fund research at Morningstar Inc. of Chicago.
“Their performance is on average, average,” he said.
But Fidelity's domestic-equity funds — the category in which Fidelity, Vanguard and American Funds have the most funds — have improved.
Including all share classes, year-to-date through July 31, 60.3% of 330 such funds from Fidelity beat their category average, according to Morningstar.
That compares with just 40.67% of 327 domestic-equity funds for the one-year period, 33.47% of 245 funds for the three-year annualized period and 38.43% of 216 funds for the five-year annualized period.
But the improvement wasn't enough to best American Funds.
Year-to-date for the same period, 71.43% of 105 domestic-equity funds from American Funds beat their category average. For the one-year period, it was 73.47% of 98 funds, for the three-year annualized period, it was 74.49% of 98 funds, and for the five-year annualized period, it was 77.55% of 98 funds.
But Fidelity's improved performance beat out Vanguard.
Year-to-date for the same period, 29.81% of 104 domestic-equity funds from Vanguard beat their category average. For the one-year period, it was 53.85% of 104 funds; for the three-year annualized period, it was 62.07% of 87 funds; and for the five-year annualized period, it was 70.13% of 77 funds.
If Fidelity can continue to squeeze good performance out of its funds, it has a shot at recapturing lost long-term mutual fund assets, said Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I.
“Performance is the cure-all for everything,” he said.
It would certainly help to dampen the “noise” surrounding a number of executive changes — both real and rumored — at Fidelity, Mr. Bobroff said.
There have been murmurs that Rodger Lawson, Fidelity's president, is looking to leave, though the firm has denied it.
Walter Donovan, president of the equities division, and Marvin Adams, who was president of Fidelity Shared Services, the firm's real estate and technology operations, left the firm this year, as did several portfolio managers.
But establishing a consistent track record will be tough to achieve.
Much of Fidelity's current good fortune — as well as that of many fund groups — can be traced to stocks that got so beaten up that there was no place for them to go but up, Mr. Kinnel said.
Only time will tell if Fidelity can maintain the improved performance in the absence of such a trend.
For its part, the company thinks that it can continue to produce good fund returns.
Fidelity has more then 900 investment professionals, including more then 480 analysts around the world, said Vincent Loporchio, a company spokesman.
“We believe that we have unrivaled resources,” he said.
That may be true, but it doesn't necessarily mean that Fidelity will again reign supreme in long-term mutual fund assets.
“They are a large, successful company, and barring some unforeseen disaster, I don't see Fidelity being anything more than a large, successful company,” said Howard Schneider, president of Practical Perspectives LLC, a Boxford, Mass., consulting firm. “That said, I don't see them recapturing their heyday when they were the leader in the mutual fund business.”
The reasons have to do with performance, but they go deeper than that, Mr. Schneider said.
LACKS AN IDENTITY
Fidelity tries to be all things to all people, and as a result hasn't really carved out an identity for itself, he said.
American Funds has an identity as a steady, conservative fund shop, Mr. Schneider said.
And Vanguard has a reputation as a conservative, low-cost provider, he said.
“Can others cut their prices to compete with Vanguard? Yes,” Mr. Schneider said. “But [Vanguard] owns that position.”
Vanguard also appears to have outmaneuvered Fidelity with regard to exchange traded funds.
Why is that important?
Last year, investors yanked $181 billion more out of mutual funds in 2008 than they put in, according to Strategic Insight.
ETFs, however, saw $176 billion in inflows for the year. Vanguard offers 39 ETFs with about $59 billion in assets, while Fidelity offers just one ETF — the Fidelity Nasdaq Composite Index Tracking Fund (ONEQ) — with about $108 million in assets. American Funds doesn't offer any ETFs.
E-mail David Hoffman at -dhoffman@investmentnews.com.
