M* Says Fidelity Flounders
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Monday, September 10, 2012

M* Says Fidelity Flounders

Fidelity [profile] may have fared decently overall with the 80 funds rated by the Morningstar Analyst Rating, with just over half garnering positive ratings of Bronze or better. But pitted against its largest competitors like American Funds, T. Rowe Price and Vanguard, alas, Fidelity pales in comparison.

To begin with, none of the competition were given Negative ratings in their lineups, while four of Fidelity's funds were given the knock down, Christopher Davis points out for Morningstar today. Also note that 27 of 35 American funds, 44 of 53 T. Rowe funds, and a whopping 74 of 80 Vanguard funds reaped positive ratings.

Fidelity has its strengths. Reasonable pricing and highly seasoned, tightly knit teams bolstered Fidelity's bond funds, all 13 of which earned Gold ratings. Meanwhile, two fixed-income products earned Silver ratings, a feat attributed to a number of up-and-coming analysts.

But note that most of Fidelity's bond operation functions relatively autonomously, with separate offices in Merrimack, New Hampshire. This "has helped [Fidelity] insulate them from the cultural faults that hurt the equity funds' ratings," Davis writes.

This is evident in the fact that, while stock funds enjoy many of the same advantages as fixed-income, they have grown too big, Davis writes. This compromises their ability to successfully implement their strategies. One example Davis gives is how Growth Company's Steve Wymer has had to own a significant potion of outstanding shares in mid- and small caps in his portfolio, limiting his ability to move in and out of stocks with ease.

Meanwhile, in the case of Bill Bower, the success of Diversified International has been almost entirely based on Bower's success between 2001 and 2005. Lack of confidence in management's process has also hurt some funds' ratings.

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