Fidelity Investments increased its earnings by 29% last year, to a record $3.4 billion, despite surging investor redemptions of its mutual funds.
The company's fund outflows — and its continued evolution to a diverse investment and service offering — have created a defining test for Abigail P. Johnson, 53, who just four months ago was
named chief executive of the company her grandfather founded.
Fidelity said its managed accounts and funds had $6 billion in outflows overall. Of that, stock funds doubled their outflows, to $16 billion from $8 billion in 2013, but they were offset in part by flows into sector funds and exchange-traded funds, as well as bond funds.
Its annual report provides a rare glimpse into the business strategy of the Boston mutual fund and brokerage giant, which is privately held and not subject to the same scrutiny as some of its exchange-listed competitors.
In the annual report, the company said its actively managed mutual funds “faced stiff competition from investors' recent preference for passive products,” a nod to a trend that sent billions of flows to competitors, including the Vanguard Group Inc., which passed the company in 2010 as the largest mutual fund company.
“We were pleased with the performance in 2014,” said Fidelity spokesman Vincent Loporchio. “You've seen investor interest in passive products and that's been a trend for a while. We believe that's a cyclical trend.”
Fidelity continues to make adjustments to its money management business, including launching its own actively managed ETFs and establishing a
partnership with sometime-competitor BlackRock Inc., which owns the largest index-ETF business, iShares.
BlackRock manages some Fidelity-branded ETFs, and Fidelity distributes iShares funds on a commission-free platform and through managed-account offerings, an area in which Fidelity is banking on growth.
Its investment performance was strong last year, according to the company. Its mutual funds “beat 66%, 70%, and 68% of peers for the trailing one-, three-, and five-year periods,” Fidelity said.
Mr. Loporchio said the figures are generated internally by the firm and represent the dollar-for-dollar, or “asset-weighted,” performance of assets in Fidelity funds against a benchmark of competitors.
According to Morningstar Inc., about 60% of Fidelity funds are in the top half of their peers for those periods, a spokeswoman said.
Overall, assets under management at Fidelity rose about 4%, to $2.03 trillion.
The Fidelity division serving independent financial advisers and their firms took $3.8 billion into managed investment products. Flows to the unit serving advisers, broker-dealers and similar institutions totaled $135.3 billion, a rise of 103% from 2013, the company said. That brought assets under administration for Fidelity Institutional to $1.88 trillion, a record high.
Fidelity added broker-dealers USAA, Mesirow Wealth Advisors and Prudential to its clearing business unit and
made an agreement to be a provider to firms served by JPMorgan Chase & Co. as it exits the clearing business.
