Fidelity made a record $5.3bn in operating income last year, a 54 per cent jump from 2016, as buoyant financial markets and a turnround in performance of its fund manager lifted the investment group’s results.
The Boston-based company is privately owned by the founding Johnson family and its senior executives but on Tuesday reported that its operating income bounced back strongly from the $3.4bn it made in 2016. There was a 13.7 per cent increase in its revenue year on year to $18.2bn.
Fidelity’s once-fabled stock pickers continue to bleed assets – another $47bn was pulled out of its actively managed equity funds last year. But it enjoyed inflows into its actively managed non-mutual funds, as well as its suite of cheaper index-tracking funds. Its asset management arm now controls $2.45tn, up 15 per cent in 2017.
“This demonstrates that customers still see value in active management but many are looking for exposure to different types of investment vehicles,” Abigail Johnson, Fidelity’s chief executive and chairman, said in the company’s 2017 report.
While Fidelity’s results improved last year, the company continues to be buffeted by a series of seismic shifts that are shaking the entire investment industry, such as the rise of cheaper passive investing, disruptive technologies and ongoing struggles to beat the returns of benchmarks.
The company’s culture has also come under the spotlight with the departure of two fund managers after accusations of inappropriate behaviour and longstanding concerns over a “boy’s club” culture and the remuneration structure.
One of the fund managers let go ran the $19.5bn Fidelity OTC Portfolio, which was one of the best-performing mutual funds in the US last year, according to Morningstar data, and has beaten 99 per cent of its peers over the past five years.
In a video message to Fidelity’s 40,000 employees last year, Ms Johnson said: “I’d like to remind everyone that we have no tolerance at our company for any type of harassment. We simply will not, and do not tolerate this type of behaviour, from anyone.”
Fidelity’s fund managers last year enjoyed a broad performance renaissance after a “challenging period” in 2016 with its mutual funds on aggregate beating 78 per cent of their industry peers over the past year.
On an asset-weighted basis, all of the big divisions within Fidelity Asset Management outperformed their benchmarks in 2017, according to the report.
The stock pickers for which Fidelity is arguably best known enjoyed a particularly sharp improvement, outperforming their indices by an average of more than 4 per cent when weighted by fund size – their strongest overall performance since 2009.
“After a challenging 2016, this outperformance – as well as the three- and five-year outperformance for equity and other categories – highlighted how investors can be rewarded by taking a long-term view when investing in actively managed strategies,” Charles Morrison, the president of Fidelity’s asset management arm, said.
Fidelity, or FMR, is a sprawling financial behemoth that services more than 29m workplace pension plan participants, 19.4m retail investors and 6.7m institutional investors with clearing and custody accounts, and its overall assets under administration rose 19 per cent to $6.8tn at the end of last year.
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