The End of the Star System at Fido?

Posted by: Lauren Young on October 25, 2007

Are the final days of star managers at Fidelity upon us?

Today’s Wall Street Journal reports that Fidelity Investments is rolling out some team-managed funds which will rely on a composite of individual manager’s contributions rather than an investment committee.

In the fund industry, American Funds—which has led the fund industry in terms of inflows for the past few years—is being held up as the champion of team investing. Dodge & Cox also gets a lot of praise for team-led funds. To be fair, Putnam Investments, which stumbled amid the mutual fund scandal, has advocated a team approach for many years, too.

What caught my eye in the Journal piece is that John Avery will be covering industrial sector for the eight-person Fidelity team. I met John back in 1997 when he was a young sector fund manager, and the company trotted him out as one of its budding stars. In my view, John is a prime example of someone who has moved up through the rank and file of the Fidelity system to the big leagues. Year-to-date, his Fidelity Fund is trouncing the S&P 500.

Overall, it will be interesting to see how group-think translates into better performance. Jim Lowell, one of my favorite Fidelity gurus, says in his newsletter to subscribers today: “Fidelity’s moderate move into team-managed funds does a few things; first, it creates even more choices for Fidelity investors. Second, it enables Fidelity to not have to close a fund if it gets too big, and then go through the expense of launching and marketing a clone fund to replace it; all they have to do in their team-managed funds is add another manager. Third, it’s an insurance policy for Fidelity; if a star manager leaves from a fund they run and whose performance track record they own, assets could follow that manager out the door. With a team-managed fund, assets are likely to be stickier by virtue of one manager leaving will have no (or at least not as much of a) noticeable impact.”

It will take a few years to see if the team approach sticks.

So here’s my question, would you be more likely to buy a Fidelity fund (or another fund offered by a rival) if it was managed by a team?

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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