By Tim McLaughlin and Ross Kerber
BOSTON Feb 12 Fidelity Investments, the No. 2
U.S. mutual fund company, said on Wednesday that operating
profit rose 13 percent to $2.6 billion last year as clients
pulled less money from its funds.
Despite improved performance for some of Fidelity's
products, the results showed the company losing ground to
competitors who focus more on index and exchange-traded funds.
Boston-based Fidelity said managed products, including
mutual funds, institutional offerings and funds packaged within
managed accounts, posted net outflows of $1.1 billion for the
year, compared with outflows of $5.3 billion in 2012.
Operating revenue jumped 8 percent to $13.6 billion on
higher asset-based fees and improved brokerage results. Fidelity
said results were dampened by persistent pricing pressures and
extremely low interest rates.
Analysts who follow the company acknowledged the profit
increase, but said flows were a concern. Among funds tracked by
Morningstar Inc, Vanguard Group Inc received $75 billion in net
flows in 2013, more than three times any other firm, and
BlackRock Inc took in $11 billion. Fidelity had only $5
billion in net flows, lagging about half of the 35 largest fund
For Fidelity, "net outflows in (a) year when Vanguard
continued to rake in the dough is more than a bit deflating,"
James Lowell, who edits the Fidelity Investor newsletter, said
Lowell noted some bright spots, such as investments in its
branch network, that seem to be paying off and the growth of
Fidelity's retirement business. Total assets under
administration were $4.6 trillion at the end of 2013, up 19
percent from 2012.
Also, in 2013 Fidelity had 23.8 million participants in its
workplace offerings such as 401(k) retirement accounts and
health savings plans, up from 22.9 million participants in 2012.
ANOTHER STEP FOR ABIGAIL JOHNSON
Because the Johnson family rarely speaks publicly,
Fidelity's annual report provides a rare look into the workings
of the business. Closely held by the family of Chairman Ned
Johnson, 83, Fidelity is known for its stable of mutual funds,
including the $100 billion-plus Contrafund.
In his annual letter, Johnson expressed "complete
confidence" in the expanding corporate role of his daughter,
Abigail Johnson, who is 52 years old.
In 2012, she was promoted to run all of the company's main
businesses, signaling that she could be the next leader of the
mutual fund powerhouse founded by her grandfather.
In Wednesday's report, Fidelity said that Abigail Johnson
also had assumed an expanded leadership role in September as
president of FMR LLC, Fidelity's parent company. That gave her
responsibility for all of the firm's financial services and
diversified businesses, as well as its corporate functions, Ned
Johnson said in his letter.
In a different portion of the report, Abigail Johnson said
Fidelity would continue adding products and services such as a
better customer contact center.
She also said Fidelity will look to engage more with women.
"Across the board, women are unhappy with our industry," the
report quoted her saying. "Our research shows many lack
confidence in their ability to make financial decisions,
particularly younger women."
Yet women often out-earn their spouses and make more
decisions involving money, and Fidelity wants their business,
Among its mutual funds, Fidelity's report showed the
progress it has made in trimming outflows by providing better
performance, said John Bonnanzio, who edits the Fidelity Monitor
& Insight newsletter for Fidelity investors. By his measures 81
percent of Fidelity's retail funds benchmarked against the S&P
500 beat the index last year, up from just 6 percent in 2011.
The outflow reduction, "suggests to me that smarter
investors are finally taking notice that Fidelity is very good
at what it does," Bonnanzio said. But dealing with indexing,
"remains their number-one challenge."
BlackRock last month reported operating income of $3.9
billion on revenue of $10.2 billion for all of 2013, both
figures up 9 percent from 2012.
In Wednesday's report, Abigail Johnson mentioned an ETF
partnership that Fidelity struck with BlackRock. But she said,
"that's only one component of our strategy," noting other
Fidelity forays into the area such as a fixed-income active ETF