Two sponsors of 401(k) funds expressed concern about the performance of two flagship funds of Fidelity Investments.
Budd Co., Troy, Mich., plans to review its $75 million 401(k) plan because of concern about the performance of some investment options managed by Boston-based Fidelity and changes in some portfolio managers.
Bucyrus-Erie Co., South Milwaukee, Wis., dropped Fidelity, expressing disappointment with one fund, Fidelity Asset Manager, over a three-year period.
At Budd, E.D. Wolf, employee relations counsel and chairman-trust investment committee, said, "We are concerned about underperformance."
In particular, he mentioned the three-year performance of the Fidelity Magellan fund and the Fidelity Asset Manager fund.
The Budd plan offers 10 investment options, all managed by Fidelity.
The plan will perform the review internally at the end of October, he said. The committee will meet with its Fidelity representative.
A Fidelity spokesman said the meeting is a scheduled annual review.
Mr. Wolf said the plan could consider changing the investment provider.
Mr. Wolf raised concern about the changes in portfolio managers at three of the 10 Fidelity funds the plan uses.
Last month, Robert Beckwitt left as portfolio manager of Fidelity Asset Manager to join Goldman, Sachs & Co. as co-head of emerging market equities. Fidelity replaced him with a team led by Richard Habermann. Mr. Habermann will oversee asset allocation and the equity and fixed-income teams. The fixed-income portfolio will be led by Kevin Grant and Michael Gray, and the equity portfolio by George Vanderheiden. In March, John Hickling left as portfolio manager of the Fidelity Overseas Fund. He was replaced by Rick Mace. In May in the most publicized Fidelity departure, Jeffrey N. Vinik left as portfolio manager at the Magellan fund to start his own firm. Robert E. Stansky replaced him.
"How long can you live with underperformance?" Mr. Wolf asked rhetorically. "When you hit that three-year mark - it's one of those industry traditions to take a hard look at it."
"I think its underperformance is substantial enough," he added. "You have to take a look at it and that means you have to consider looking at other options. I don't know if we will move. But you have to consider it."
At Bucyrus-Erie, John F. Bosbous, assistant treasurer, said the plan hired Vanguard Group to provide fully bundled service, including eight investment options, record keeping and education.
The move replaced investment options managed by Fidelity and Bank One. Also, it replaced Wyatt as record keeper and Bank One as trustee.
The plan dropped two of its three investment options: the Fidelity Asset Manager balanced fund; and an equity fund which was a 50-50 blend of the Fidelity Contrafund and the Bank One disciplined value fund.
Mr. Bosbous said the company was disappointed in the performance of Fidelity Asset Manager, although he noted the Fidelity Contrafund performed well. He said the company selected Vanguard because it has the best core funds, compared to the other finalists considered, Fidelity and Norwest Bank.
For the periods ended June 30, Fidelity Asset Manager had a total return of 4.19% for six months and a compound annual return of 8.74% for three years and the Fidelity Magellan fund 2.81% and 14.2%, according to Morningstar Inc., Chicago.
By contrast for the same periods, the Standard & Poor's 500 Stock Index had a total return of 10.09% and 17.2% and the Lehman Brothers aggregate bond index, -1.22% and 5.26%, according to Morningstar.
For the periods ended Sept. 30, Fidelity Asset Manager had a total return of 6.44% for nine months and an annualized return of 7.97% for three years and the Fidelity Magellan fund, 4.5% and 11.86%, according to Fidelity.
By contrast for the same periods the S&P 500 had a total return of 13.47% and 17.39% and the Lehman Brothers aggregate bond index, 0.6% and 5%.
The Bucyrus-Erie plan will keep its in-house guaranteed investment contract fund until the contracts mature, when it will move to a Vanguard-run GIC fund.
In addition, Vanguard will provide seven other investment options. The plan will move to daily valuation and switching from quarterly.
Allbright & Hart Financial Advisors, Dallas, assisted Bucyrus-Erie in the change.
