Is the practice of actively promoting “star” fund managers on the wane? Fidelity Investments, at least, appears to be trending in that direction.
The Boston-based mutual fund behemoth, home to Gerald Tsai and Andy Warhol look-alike Peter Lynch, whose index-beating run as the head of Fidelity’s Magellan fund still evokes shock and awe, began slowly moving to a team-based management approach in 2007.
Morningstar senior analyst Christopher Davis estimates $60 billion of the $600 billion Fidelity manages in stock and balanced funds in now managed by teams, still a “relative pittance,” Davis notes, but one that’s growing.
“This line of attack, which divvies up portfolios among sector specialists and keeps sector weightings aligned with a market benchmark, isn't management by committee,” Davis writes in recent commentary. “Each manager runs its sleeve independent of the others. But it marks a real departure from the one-manager, one-portfolio approach that's long been the Fidelity way.”
Fidelity first adopted the multimanager approach in 2007 for the annuity version of Fidelity Contrafund and in 2008 for Fidelity Balanced and for a chunk of the Fidelity Freedom funds. Somewhat ironically, Davis adds, “the firm enlisted one of Lynch's successors at Magellan, Bob Stansky, to oversee the specialists, who have responsibility to pick stocks within their areas of expertise at all three offerings.”
The timeline since is as follows: In 2009, Fidelity put a team in place at Fidelity Stock Selector Small Cap. That same year, it combined nine sector-fund portfolios for Fidelity Stock Selector All Cap. In 2010, it created a team to focus on value stocks and run half of Fidelity Value. Most recently, in 2011, it dispatched the Fidelity Value group to take over struggling Fidelity Large-Cap Value.
“With a little more than three years under its belt, it's still premature to pass judgment on the oldest multimanager group,” Davis writes. “But it's not too soon to evaluate its capabilities or whether its strategy is likely to deliver over the long haul, especially given the multimanager model's growing prominence.”
So far, he doesn’t like what he sees, noting the multimanager approach “hasn't acquitted itself from a performance standpoint. The annuity version of Fidelity Contrafund has lost 2% under Stansky's team, a bit worse than the S&P 500's 1.2% loss. And Fidelity Stock Selector All-Cap has turned in similarly middling numbers.”
“What makes me skeptical of the multimanager model isn't just strategy but also that it marks a major shift in Fidelity's investment culture,” Davis concludes. “Its best managers, such as [Will] Danoff and [Joel] Tillinghast, have been successful partly because they had freedom to think broadly and were given a lot of room to roam.”