Saturday, October 18, 2008
Fideility Mutual Funds Lag Behind
One of the biggest losers from the market collapse could be mutual-fund giant Fidelity Investments. Almost every stock mutual fund is getting hammered, but some of Fidelity's best-known funds are feeling even deeper pain. The $28.6 billion Magellan fund, has lost 46% through Oct. 16. That is worse than the 36% drop for the average stock mutual fund and the 34% loss for the S&P 500 index. The fund has three-year and five-year track records much worse than the industry. It has lost 26% over three years, compared with a drop of 15% for the S&P 500. Behind Magellan's woes is a decision to own too many financial companies, and to bottom-fish for more earlier this year. There is weakness elsewhere in the Fidelity family. Fidelity's Growth Company fund is down 38% this year, though it is down 9.2% over the last three years, better than the industry. Fidelity Value is down almost 41% this year, and has dropped 24% over the past three years. Fidelity says its funds beat more than 60% of peers on an asset-weighted basis over the past three, five and 10 years. But eight of Fidelity's 10 largest funds have lost more than the S&P 500 over the past 12 months, and seven of the 10 have underperformed over the past three years, according to Morningstar. Some of the explanation can be found in the expense ratios of about 0.7% that funds like Magellan levy. But that is hardly comfort for investors. Mutual-fund investors generally are slow to dump their investment firms, preferring to ignore monthly account statements in times of stress. But Fidelity customers have been souring on the firm's funds. Five of Fidelity's top 10 equity funds have seen investors pull money out over the past 12 months. Low-cost index funds and exchange-traded funds always begin the investing race with a head start over higher-cost managed funds. But if Magellan and others continue to lag behind, investors might finally get the message that they are better off tracking an index than paying a manager to underperform.