Fidelity Clones Its Way Back to the Top
Bring in the clones.
Fidelity Investments'
(FEQIX) - Get Fidelity Equity-Income Report
Equity-Income and
(FEQTX) - Get Fidelity Equity Dividend Income Report
Equity-Income II funds have been bookends for a decade. Then came
(FDESX) - Get Fidelity Adv Diversified Stock O Report
Destiny I and
(FDETX) - Get Fidelity Adv Capital Devlpment O Report
Destiny II. Last year,
(FCNTX) - Get Fidelity Contrafund Report
ContraFund got a companion,
(FCONX) - Get Fidelity Conservative Income Bond Report
ContraFund II. Just this month, Fidelity launched
Growth and Income II
.
TheStreet Recommends
Where will it stop? Is there a
Magellan II
in the making?
Fidelity hardly has a lock on the idea of cloning best-selling funds.
Vanguard Group
has long run
(VWNDX) - Get Vanguard Windsor Inv Report
Windsor and
(VWNFX) - Get Vanguard Windsor-II Inv Report
Windsor II;
Putnam Investments
has
(PVOYX)
Voyager and
(PVIIX)
Voyager II.
Pioneer Group
once went so far as to have
Pioneer I, II
and
III
.
But more than most of its competitors, Fidelity finds itself in a difficult position: It is in dire need of something to sell at the end of those 800 numbers.
A company with one of the best brand names in the world has ironically been left with virtually no brand names on the shelf. That is a product of its decision over the past 18 months to close some of its biggest and most popular funds, and it has had an unexpected and dramatic impact on sales.
Through the first 11 months of 1998, Fidelity equity funds ranked an embarrassing ninth in net sales behind such no-names as
Davis Select Advisers
and
Blackrock Funds
, according to
Financial Research Corp.
, a Boston consulting firm. The real competition, Vanguard, outsold Fidelity more than eight to one. This comes at a time, no less, when Fidelity's investment performance is among the strongest in the industry, and Peter Lynch's familiar face is everywhere in what is probably the most expensive advertising campaign in the company's history.
The clones are part of Fidelity's answer to its drought of new equity fund sales.
(FGRIX) - Get Fidelity Growth & Income Port Report
Growth & Income, for instance, was Fidelity's No. 1 seller in 1997, but it has had outflows in four of the past five months since closing, according to
Alpha Equity Research
, a consulting firm that tracks the mutual fund giant. The
(FFIDX) - Get Fidelity Fund Report
Fidelity fund, another growth-and-income fund, was promoted as an alternative for investors and has in fact been the company's second-best-selling actively managed fund. But Growth & Income II will give Fidelity a chance to leverage a brand it has spent years building.
A caution to investors: A name does not make a fund.
While a number of funds share names and general investment objectives, they have not necessarily shared results. The best recent example is Vanguard's laggard Windsor Fund, up a mere 0.8% last year vs. a gain of 16.4% for Windsor II.
The same is true at Fidelity. Equity-Income had outperformed Equity-Income II for three years in a row by anywhere from 2 1/2 to 5 percentage points, but last year EQII manager Bettina Doulton blew past fellow manager Stephen Petersen, up 23% to 12.5%. Destiny I and II, which long moved together while George Vanderheiden managed both funds, have also emerged with different personalities since Beth Terrana took over the junior Destiny fund.
While the new Fidelity clones have different managers, the company has gone out of its way to see that they are likely to share similar philosophies. Jason Weiner, manager of Contra II, was an assistant to Contra manager Will Danoff. Louis Salemy, the new manager of Growth & Income II, was an understudy for Growth & Income manager Steven Kaye from 1995 to 1997.
What's next?
The betting is that Joel Tillinghast's
(FLPSX) - Get Fidelity Low-Priced Stock Report
Low-Priced Stock, closed along with Contra and Growth & Income, is the most likely candidate to be cloned. With most of Fidelity's funds moving up the food chain to big-capitalization stocks, the company has precious few offerings in the small- and mid-cap area. A fund started last year,
(FSLCX) - Get Fidelity Small Cap Stock Report
Small Cap Stock, was closed two months after it opened, when investors flooded it with money.
(FMAGX) - Get Fidelity Magellan Report
Magellan, America's mutual fund, remains the most intriguing possibility. Talk of cloning Magellan has been around for at least a decade as the fund grew to what critics said was an unmanageable size. It has never happened, and Fidelity instead chose to close the fund in September 1997.
Most Fidelity watchers still think it's not in the cards. Magellan, they say, is unique. It is simply too broad to copy. "I don't think you are going to see a Magellan II," says James Lowell, editor of the
Fidelity Investor
newsletter.
Eric Kobren, who as executive editor of the
Fidelity Insight
newsletter has a better record than most at calling such turns, also says there are no plans for a new Magellan. But he adds this caveat: "Anything is possible. I wouldn't rule it out."
Fast Start at Fifty
Is John Muresianu the new Peter Lynch or what?
Last Monday, Muresianu was named to manage the $170 million
(FFTYX)
Fidelity Fifty fund, and by the end of the week, his fund was up an extraordinary 11.22%, triple the
S&P 500
index and far ahead of any of Fidelity's other diversified funds. The big spike is all the more surprising given Fifty's mediocre 1998 performance, returning 15.5% vs. 20.0% for the average capital-appreciation fund.
Talk about being in the right place at the right time: Muresianu, 45, a onetime college history professor, hasn't even had time to find his way to the bathroom, much less make the kind of changes that would supercharge his fund.
Most of his top 10 stocks have had good runs since the first of the year, but the bet here is that there are some names just off the radar screen that are exploding. We'll give you a one-word hint at what's behind it: Internet.
Steven Syre & Steve Bailey write for the Boston Globe. This column is exclusive to TheStreet.com. Under no circumstances does the information in this column represent a recommendation to buy stocks or funds.
