September 26, 2012 / 11:26 PM / 7 years ago

Fidelity's stock funds eclipsed by bond and money market assets

BOSTON (Reuters) - Stock funds no longer are king at Fidelity Investments.

Bond and money market assets at Boston-based Fidelity now total $848.9 billion, more than half of the company’s $1.6 trillion in managed assets. Ford O’Neil, a top bond manager at Fidelity, underscored the milestone on Wednesday during a media presentation in Boston.

The rise of bond and money market funds, including institutional assets, is a remarkable turn of events for Fidelity. The company built an empire in the 1980s and 1990s on stock funds and star stockpickers like Peter Lynch. Fidelity’s stock mutual funds held $761 billion at the end of June.

But investors continue to pull money out of stock funds, a holdover from the dotcom bust and the financial crisis that peaked in 2008. Investors have flocked to bond funds and other investments deemed more safe or less expensive. During the first seven months of 2012, investors pulled $40.4 billion from U.S. stock funds while taxable bond funds attracted $144.2 billion in net new flows, according to the Investment Company Institute.

At Fidelity, bond funds this year have attracted $18.3 billion in net flows from customers. Meanwhile, Fidelity stock funds have experienced net outflows of $3.6 billion, according to Lipper Inc, a Thomson Reuters company.

“Most people haven’t made money in the stock market in the last decade plus,” said Sonu Kalra, who manages the $15.4 billion Fidelity Blue Chip Growth Fund.

When asked by a reporter how he felt about the emergence of bond funds at Fidelity, Kalra smiled and said, “We’re all one big happy family here.”

While Fidelity stock fund managers in Boston say that the current starting point for investing in equities couldn’t be better, the company’s bond operation in New Hampshire is still attracting billions of dollars in new customer money.

O’Neil said the bull market for bonds was supposed to be over a long time ago. But that hasn’t happened. Not yet, anyway.

“Believe it or not, it’s been another good year,” O’Neil said. “I was told you couldn’t have another good year after 2009.”

O’Neil, who manages the $15.33 billion Fidelity Total Bond Fund, has seen inflows of $1.95 billion since the end of 2008. His three-year annualized return of 7.97 percent beats the benchmark return of 6.18 percent, according to Lipper.

Sitting nearby, Kalra made the case for investing in a stock market that may be on the verge of a prolonged upswing, if you see opportunity in the S&P 500 Index’s price-to-earnings ratio, which is at a historic low.

Kalra certainly has found some traction, producing some market-beating returns since he took over the Blue Chip Growth fund in July 2009. His three-year annualized performance of 15.09 percent is better than 78 percent of the funds in the multi-cap growth category, according to Lipper.

And in 2012, Kalra’s fund has attracted estimated net inflows of $250 million amid a year-to-date return of 18.93 percent that has outperformed the 16.8 percent rise on the Russell 1000 Growth Index, according to Lipper. The fund’s outflows were $580 million last year, $277 million in 2010 and $795 million in 2009, according to Lipper.

Lisa Emsbo-Mattingly, director of research for Fidelity’s global asset allocation, said in 1999 the investor psychology was, “Own equities, forget the bond guys, that’s for suckers.”

As you would expect, she made the case for a diversified portfolio of stocks and bonds.

“You should own Ford and you should own Sonu,” Emsbo-Mattingly said.

Reporting By Tim McLaughlin; Editing by Tim Dobbyn

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