Since Robert C. Pozen took the investment helm of Fidelity Investments nine months ago, the game of portfolio manager musical chairs seems to have stopped.
Instead, the real news about Fidelity is the aura of stability that surrounds the investment management side these days.
In an interview with Pensions & Investments last month in Detroit, Mr. Pozen said Fidelity will not shuffle managers any time soon. He said he's comfortable with the investment management team in place now, even in the case of a fund like the $30.8 billion Contrafund, whose manager, Will Danoff, underperformed the Standard & Poor's 500 stock index by more than 10 percentage points in 1997.
Russ Kinnel, equity mutual fund analyst at Morningstar Inc., Chicago, believes Mr. Pozen.
"One of the best things that has happened at Fidelity is that (Mr.) Pozen stopped the manager merry-go-round. He's been much more straightforward about acknowledging problems (than his predecessors) and he's done what he said he would do: provide stability."
In the interview, Mr. Pozen said he might lessen the load on Fidelity's more overworked managers -- such as George Vanderheiden and Bettina Doulton -- by moving some of their asset management responsibilities to other managers "where it's an intelligent move" and as younger portfolio managers mature.
Mr. Vanderheiden manages the equity portions of seven mutual funds totaling $43.8 billion as of Dec. 31. Ms. Doulton managed $32.6 billion in equities as of the same date in three funds.
Promote from within
Mr. Pozen adamantly supports the Fidelity culture of promoting from within. Managers in training are analysts for at least five years and are promoted to managing some of Fidelity's Select series of funds as their first assignment.
"It's a very good system and it's very tough. You are either in or out based on how well you select stocks . . .," he said. "And besides, there is not that much good talent out there to hire. We'd rather train our own."
The average age of portfolio managers at Fidelity is 35. "I wonder when they're all going to start calling me 'Gramps,' " said the 51-year-old Mr. Pozen.
Mr. Pozen's decision to leave things alone follows two years of changes before he became president and chief executive officer of Fidelity Management & Research Co.
In March 1996, Fidelity reassigned the managers on 26 of its 238 funds. The equity group was divided into eight teams of about six managers each, focused around similar investment disciplines and objectives.
Another shuffle affected nine managers in January 1997.
Fidelity's chairman, Edward C. Johnson III, explained the first move in the company's 1996 annual report: "While it would have been easier to make only a few changes, we decided to use this opportunity to rethink how we could best leverage our resources and talent. Our goal was to confirm that each manager's investment style was aligned with the requirements of his or her fund assignment, so we'd have the best person on each fund."
Improved performance
The goal seems to have been met. Performance, relative to peer funds, generally has improved, Mr. Pozen said. The number of Fidelity equity funds with returns in the top two quartiles of their peer groups rose to 62% in 1997, from 46% in 1996, he said.
Bond funds showed even more improvement, with 80% of Fidelity's bond funds in the first two quartiles of their peer groups in 1997, vs. 70% in 1996.
Rockville, Md.-based CDA/Wiesenberger's analysis of equity fund peer group returns for the same period roughly match Mr. Pozen's. For bond funds, however, CDA/Wiesenberger's analysis shows 64% of Fidelity's bond funds were in the top two quartiles of their peer groups in 1997, down from 66% in 1996.
Dan Phelps, a CDA/Wiesenberger analyst, said he could not explain the difference between his returns and Mr. Pozen's, except to speculate Fidelity might be including funds that invest in convertible securities, which CDA/Wiesenberger places in a different category.
When CDA/Wiesenberger compared 1997 and 1995 peer group returns for the five Fidelity equity funds most used by defined contribution plans, it found:
Performance relative to peers was worse in 1997 than in 1995 for the $30.8 billion Contrafund, $10.5 billion Growth Company and $63.7 billion Magellan funds.
Performance was better in 1997 than in 1995 for the $21.2 billion Equity Income I and $36.6 billion Growth & Income funds.
But none of the five outperformed the S&P 500 for the year ended Dec. 31.
True to their styles
Mutual fund analysts say managers of Fidelity's big equity mutual funds seem more interested in following their investment styles than in beating the market.
"I think Fidelity is recognizing that 401(k) plan sponsors don't necessarily want funds that shoot the lights out. They want style consistency," said Morningstar's Mr. Kinnel.
"These five Fidelity funds have begun to behave more like people expect them to and to match the marketing descriptions of the funds Fidelity provides," said Ivan S. Cliff, vice president of databases and performance measurement at Callan Associates Inc., San Francisco, who performed style analysis on the funds.
Magellan, for example, is sold as a growth fund. Using returns-based analysis, Mr. Cliff found Magellan performed like a growth equity fund before 1990, but developed a huge value bias in the early 1990s. In 1997, the fund was moving back to a growth bias, although it is still technically a blend of growth and value.
The Contrafund, which is usually portrayed as a value fund, with a midcap to small-cap bias, had a lot of growth exposure in 1990 and 1991, but has returned to more of a value orientation in the last five years, Mr. Cliff said.
The Growth Company fund is marketed as an aggressive growth fund with a small-cap to midcap bias; it has generally tracked true to this description, although its market-cap weightings are very close to making it a large-cap fund, Mr. Cliff found.
The Growth & Income fund always has been heavier on the value side and is becoming even more value-oriented, closer to Fidelity's general portrayal of the fund, he said.
Mr. Pozen said attention to style purity is being paid primarily to the core equity funds most used by institutional investors such as 401(k) plans, rather than across the board. "We are a big enough fund house that we can have different kinds of funds available for different kinds of investors," he said.
