U.S. Markets

Fidelity Investments profit dips as it battles tough competition

BOSTON (Reuters) - Fidelity Investments on Thursday said it took in a record amount of revenue but posted a lower profit in 2015 as the mutual fund company spent more on staffing and technology to battle tough competition from larger rivals.

A pedestrian walks past a stock ticker at a Fidelity Investments office in Boston, Massachusetts July 31, 2013. REUTERS/Brian Snyder

Closely-held Fidelity, known for managing millions of retirement and college savings plans, said operating income fell 6 percent to $3.2 billion in 2015.

At the same time revenue climbed 6 percent to $15.9 billion. Company expenses totaled $12.7 billion, 10 percent more than in 2014 because of the cost of employees and computer systems, according to an annual report emailed by a spokesman.

Fidelity, which has been losing ground to rivals like Vanguard Group and BlackRock Inc, said total assets under management grew 1 percent to $2.04 trillion in 2015.

Founded and still run by the family of Chief Executive Officer Abigail Johnson, Fidelity has long been known for its star stockpickers like Will Danoff, manager of the $103 billion Fidelity Contrafund.

But last year investors took $18.8 billion out of Fidelity’s actively-managed stock portfolios, reflecting a growing taste for less-expensive index funds.

In the report Charles Morrison, president of Fidelity’s asset management unit, wrote that despite the active stock funds’ strong performance, “sometimes perception can overshadow reality.” Fidelity is using advertising and client events to renew investors’ faith in active management, he said.

Bond products had inflows of $11.7 billion, Fidelity said. Across all products it administers, Fidelity said net deposits of investor cash totaled $190.8 billion. That was down slightly from $210.3 billion in 2014, though that year’s figure was boosted by an administrative change.

James Lowell, who edits a newsletter for Fidelity investors, said the results showed how Fidelity has more flexibility to invest in itself, even at the expense of profits, compared with publicly-traded competitors.

“The worse the times are for others, the better for Fidelity,” he said.

In a letter to the company’s shareholders, Johnson said customers sought its assistance as never before during the year because of volatile markets.

It handled the increased activity with no disruptions in service, the CEO said, calling this “a testament to the investments we have made in systems and technology.”

Total company-wide employment rose to 45,000 people currently from 42,000 a year ago, said Fidelity spokesman Vincent Loporchio.

Reporting by Ross Kerber; Editing by Andrew Hay and Tom Brown