Fidelity is known to be the largest US mutual fund company, with over twenty three million customers throughout the country investing in its approximately four hundred mutual funds. The company manages over $1.3 trillion in assets in the US alone with a further $280 billion being managed overseas. With such an array of individual funds available, it would be impossible to review all of them individually in an article of this nature. However, we can take the time to review the general areas that are covered by the funds.
Fidelity offers a range of mutual funds covering a number of different areas. These include domestic stock funds, which consist of common stock of US corporations and use a range of differing criteria. For example, the fund might concentrate on large growth, focusing on the performance of corporations with a capital value exceeding $5 billion, or a small growth criterion, which concentrates on the companies with smaller capital values. Furthermore, there is a huge diversity of formulations in between. This group includes the largest fund Contrafund, which has over $69 billion of assets. The group’s international funds are similar in style to the domestic, with the only differences being the stocks selected are comprised of international rather than domestic corporations, hence their Canada and Pan Asian funds.
In addition to the stock based funds, Fidelity also offers specialist funds. For example, there is a speciality sector range, which as the name suggests concentrates upon a particular commercial sector. Others in these specialist areas include the money market funds, bond funds and hybrids.
Some of the funds are created and can be used for specific purposes, such as replacement income, education and retirement and as such could form part of your personal or family investment planning strategy.
Like other mutual funds, the performance of Fidelity’s funds can be measured against the performance of those offered by other financial institutions. The performance measurement that Fidelity uses is the independent Morningstar rating system. This system works on the following basis: –
5 stars = top 10%
4 stars = next 22.5%
3 stars = next 35%
2 stars = next 22.5%
1 star = bottom 10%
In terms of performance, Fidelity has the following number of funds within the four and five star performance categories.
Domestic funds = 26
International and global fund = 11
Speciality sector = 15
Real estate = 1
Stock index = 2
Bond Index = 1
Asset Allocation = 2
Lifecycle = 8
Hybrid = 4
Others = 89
This makes 159 funds, which means that around 250 of Fidelity’s funds are below the 60% performance levels when compared with other institutions, although the company website proclaims that they have more funds within this performance bracket than any other financial institution.
However, when evaluating the performance one also has to take into account the number of funds being compared. For example a five star award in a sector that only has ten comparison funds can be seen to perhaps be a better performing fund than one that has five stars with over one thousand funds being compared.
One area of concern that should be considered when choosing Fidelity as your investment vehicle is the troubles they have been having with the financial regulator over the past seven years. In 2001-2002, Fidelity were fined $2 million for incidences in 21 of their 88 offices where employees destroyed or altered documents. Similarly, in February 2007 four associated broker dealer were fined $3.75 million for alleged administration violations and in May of the same year, two other brokers/dealers were fined $400,000 for preparing and distributing misleading promotional material.
There is no doubt that Fidelity mutual funds are operated by a secure company and therefore, taking the opportunity to invest in these funds will be as secure as any investment can be. However, one has to take care when choosing the particular fund where you want to place your investment. Whilst it has to be accepted that past performance is no guarantee for the future, a fund that is consistently within the top two Morningstar ratings suggest an effective and efficient fund management team is in charge. Furthermore, whilst Fidelity state that their mutual fund have “No load, no transaction fees” one has to read the small print. No mutual funds operate without fees and charges being applied somewhere within the system. However, in this respect Fidelity is like every other financial institution. They are in business to make money and they can only do this by making money for the investors.
Whatever mutual fund you choose to invest you hard earned money in, it is strongly recommended that you seek independent financial advice before you make your final decision.
Morningstar source: http://personal.fidelity.com/products/funds/framesets/four_and_five_frame.shtml.cvsr?refpr=zmfov02