By Chuck Jaffe, MarketWatch
Neal Hamberg/Bloomberg News
Fidelity Investments’ print ad campaign highlighting some of the company’s best managers was supposed to make people think about star power.
Instead, it nearly proves that the fund industry is a black hole, sucking all the starlight into darkness.
Past industry stars are gone, like the long-retired Peter Lynch of Fidelity or John Neff of Vanguard. Bill Gross’s legacy was starting to tarnish by the time he left Pimco late last year, and his results since moving to Janus have been uninspiring. Demi-gods like Bill Miller, formerly of Legg Mason Value Trust /zigman2/quotes/203623666/realtime LMVTX +3.48% , or Marty Whitman of the Third Avenue funds, were exposed as mere mortals by sour performance as their careers came to a close.
The big star in today’s manager galaxy is Jeff Gundlach of the DoubleLine funds, but he runs bond funds; Gross proved that the public can be enamored with bond managers, but it’s just not the same ardor that’s reserved for a hot stock jockey.
The Fidelity campaign proves, almost by accident, that the household names in money management today are more celebrities — famous because they are known through media appearances — than forces of nature whose results made them fascinating and irresistible.
What we learn about the Fidelity managers in the ads can be summed up thusly: they’re not Peter Lynch.
First in the series was an ad about Joel Tillinghast, who has run Fidelity Low-Priced Stock /zigman2/quotes/208508299/realtime FLPSX +1.87% since its inception in 1989, and who has outperformed the Russell 2000 — the fund’s benchmark — by roughly 4.7% annually over the last quarter century.
If you’re not a shareholder in Low-Priced Stock or a fund junkie, the ad is an introduction.
Lynch never needed that; his books, his media presence and shockingly good results made him the face of investing for a generation. The same could be said for the big-name guys of the past; you wanted to get to know them because of their sterling records, but you found them on the pages of the magazines in stories, not advertisements.
Fidelity’s second ad highlighted Bill Bower of Fidelity Diversified International /zigman2/quotes/202172914/realtime FDIVX +1.46% , and future promos will center on Matt Fruhan of Fidelity Large Cap Stock /zigman2/quotes/207280939/realtime FLCSX +1.43% and Will Danoff, who has run Fidelity Contrafund /zigman2/quotes/202430342/realtime FCNTX +0.89% since 1990.
Not even Danoff, whose fund accounts for more than one-eighth of the money in Fidelity’s actively managed funds, is truly recognized by the general public.
The idea behind the ads was to focus on the benefits of active management, which has been losing ground in a war with passively managed index funds and exchange-traded funds (ETFs).
The timing is no coincidence, as index funds typically are hard to beat when markets are rising but active management comes to the fore when markets turn and take index funds down with them. A lot of savvy market observers — including some of Fidelity’s top managers — believe a downturn or setback is coming.
Fidelity built its reputation on stock-picking prowess. Roughly half of Fidelity’s active funds beat their benchmarks over the last five years, according to Morningstar Inc., which reports that only 20% of all active funds hold that distinction.
Fidelity also is a huge player in the index game; it’s just reminding investors that solid stock-picking pays off.
That reminder may be necessary because today’s “star” for a fund may be the assets it buys, more than who makes the decisions.
Bill Miller made his legend by topping the S&P index for 15 consecutive years, but lost his magic touch when the streak ended in 2006.
Today, even the most ardent fund investor would have a tough time knowing which fund and/or manager has the longest streak of topping the S&P.
In fact, just four actively managed funds — Fidelity Select Health Care /zigman2/quotes/204236610/realtime FSPHX +0.82% , Fidelity Advisor Health Care /zigman2/quotes/209344073/realtime FACDX +0.78% , T. Rowe Price Health Sciences /zigman2/quotes/207918233/realtime PRHSX +4.04% and VALIC Company I Health Sciences /zigman2/quotes/206511247/realtime VCHSX +0.92% —have current streaks of eight consecutive calendar years of beating the S&P 500, according to Morningstar.
All are in the health-care sector — which accounts for seven of the 16 funds with active streaks of beating the index for at least four straight calendar years — suggesting that assets are a bigger factor than management in making the funds shine.
Ironically, the two Fidelity funds are run by the same manager, Edward Yoon, who was not featured in the firm’s print ads. (The T. Rowe Price and VALIC funds also share a manager, although the person running those funds changed in 2013.)
“Fidelity used to be famous for having gunslingers as fund managers, until they found out that the gunslingers were bad for business because eventually they shoot themselves in the foot or are just off-target,” said David Snowball of MutualFundObserver.com. “Yes, Fidelity has developed star managers like Joel [Tillinghast] and Will [Danoff], but even they don’t find people anymore who fundamentally change things, who think differently than everyone else and bring true genius to the job.
“If you are buying actively managed funds, you want good managers, but you don’t need star managers,” he added. “The days when you felt you had to invest with true genius or you couldn’t make real money are gone.”