With 190 different funds and assets totaling $170 billion, Boston-based Fidelity Investments is the General Motors of the mutual fund industry. The main difference is that, in recent years, Fidelity has handled its money and planning a whole lot better than GM has.
Amazing expansion and endless new fund introductions are both good and bad. They're good because they breed success, bad because they sometimes make the overall structure overwhelming to average investors.
Keeping similar-sounding fund names straight and remembering investment goals and fees for specific choices is a formidable task.
"My advice is to go slow and try to keep things simple," counseled Eric Kobren, editor of Fidelity Insight, a newsletter which tracks performance of Fidelity funds and makes recommendations. "Don't try to invest in all kinds of funds, but realize four or five funds are enough, with two or three plenty for most people."
Among the many mutual fund companies, Fidelity is unavoidable due to sheer bulk. The $21 billion-asset Fidelity Magellan Fund, for example, grabs front-page financial headlines whenever its portfolio manager changes. (Incidentally, both newsletter writers interviewed here heartily approve of new Magellan manager Jeff Vinik, who replaces Morris Smith.) Movement of managers anywhere in the firm draws attention.
"Steady growth in Fidelity funds continues, with some trends being the popularity of the Spartan 'limited-expenses' funds and an increase in number of no-load [no initial sales charge] funds," observed Jack Bowers, editor of Fidelity Monitor, another investment letter that follows Fidelity. "My caution is not to go into any growth-oriented funds without aiming for a three-year minimum time period."
Two-thirds of Fidelity funds beat the performance of their counterparts at other firms, according to Kobren. Of course, in a competitive environment like that at Fidelity, fund managers compete with each other. They're brought along the "Fidelity way," hired young and trained as analysts before being moved into a private fund. Next stop is their very own mutual fund. If they do well, they move up to larger, more important funds.
"Fidelity hires young, energetic workaholics, gives them lots of authority and doesn't subject them to formal committees or set 'buy' lists," said Kobren. "It will be interesting to see how some of these young managers, who have never had to handle an extended bear market, will fare once we have one."
What's the hottest fund right now? The no-load Fidelity Equity Income II, up 46 percent last year and 9 percent this year, is recommended by Kobren and Bowers. It emphasizes inexpensive small-company stocks. In one of a number of manager changes at Fidelity, its new manager is Brian Posner, formerly of Fidelity Value Fund.
The diversified growth model of Bowers is currently 60 percent in Equity Income II and 40 percent in the Contrafund small-stock fund, which is up 5.55 percent this year.
Some funds are downright cold. Kobren has recommended selling shares of two Fidelity Select funds, Health Care and Biotechnology, because they aren't hot growth prospects anymore. Bowers sold the Medical Delivery portfolio among Select funds, but has holds on Health Care and Biotechnology.
Bowers is cautious, but does like certain growth and income funds, among them the 2 percent-load Puritan Fund, up 7.8 percent this year; the no-load Convertible Securities, up 9.9 percent; and the no-load Balanced Fund, up 3.9 percent.
Kobren recommends the no-load Low-Priced Stock Fund, up 10.9 percent this year. It emphasizes stocks under $25 and is run by Joel Tillinghast.
An annual subscription to the 60,000-circulation Fidelity Insight for 12 issues plus telephone hot line is $177. Address is P.O. Box 9135, Wellesley Hills, Mass. 02181. An annual subscription to the 3,200-circulation Fidelity Monitor for 12 issues is $96. Address is P.O. Box 1294, Rocklin, Calif. 95677.