When the New York Times highlighted how Fidelity [profile] is changing under Abby Johnson, one key tidbit the paper overlooked was collective funds (otherwise known as collective investment funds, i.e. CIFs, or collective trusts or collective investment trusts, i.e. CITs). Oh, and the paper hints that Fidelity may start to mimic a key approach of a certain giant rival on the west coast.

Avid watchers of the Boston Behemoth should be familiar with this issue, as it has been overlooked and then pushed back on multiple times in recent years. The Times, like many others, has noticed that many top-performing active Fidelity mutual funds have still suffered net outflows. When funds are closed to new investors, it makes sense that they will suffer net outflows, as inflows are significantly (or completely) curtailed and thus any redemptions will lead to net outflows. Yet many of the net outflows from big mutual funds, especially at a 401(k)-centric company like Fidelity, are going into collective funds that are just more 401(k)-friendly versions of those mutual funds.

As the paper notes, Fidelity's AUM is still growing (up 58 percent in seven years, to $2.4 trillion), and part of that is due to collective funds and passive products (while part of it is due to rising markets). Meanwhile, growth in assets under administration from businesses like Fidelity Workplace Investing (recordkeeping for 401(k)s and more), Fidelity Personal Investing (retail discount brokerage), and Fidelity Institutional (custody and clearing for other broker-dealers and RIAs), is definitely setting a faster pace (Fidelity's AUA doubled in seven years, to $4.4 trillion). Though many of Fidelity's PMs have been famous, senior leadership at the company has long focused on the firm's strength as a technology company, not an asset manager, as the key to its competitive advantages and long-term growth.

"We need to figure out how to capture the imagination and attention of the next generation of investor," Johnson tells the Times.

Amidst a summary of recent Fidelity news (including the sexual harassment scandals in the fall in Fidelity's stockpicking unit) and other tidbits, the paper also reveals a potentially massive change at Fidelity: that the company (presumably Johnson herself) is considering shifting away from a lead PM model (which is prone to creating stars) "to a team-based system for picking stocks." The paper does not mention that that team-based approach is a key part of what drives another giant mutual fund shop, Capital Group, which has traditionally been much shyer about publicity than Fidelity.

DealBreaker picked up on the Times' article. 

Edited by: Neil Anderson, Managing Editor


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