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Fidelity Funds: A Deeper Look at the Performance

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As fund investing keeps growing in popularity with American families, so has the fortunes of one of the industry's biggest players. Fidelity Investments says it works with more than 38 million customers and employs 47,000-plus workers worldwide. It claims to make around 2.6 million trades a day and has built a financial services complex that works with some $11 trillion in total customer assets.  

The venerable Boston-based funds manufacturer, which traces its roots to 1946, manages more than 250 mutual funds. Besides running such a plethora of investment vehicles, these days Fidelity is a major competitor in brokerage services, asset custody, wealth management, life insurance and institutional retirement services. In 2018, it opened a dedicated business focused on handling and executing trades for institutions dealing in Bitcoin and other cryptocurrencies. 

Given its global reach across financial services and brand recognition as a long-tenured investment manager, we thought it might be insightful to put under our research microscope Fidelity's family of stock mutual funds.  

Typically, active managers give us fits in trying to find enough funds to study over periods that can be considered as statistically significant. This can be due to a nasty tendency in the industry to play a sort of shell game with investors. In short, active managers will often shutter or merge a lagging fund into a different member of its fund family.

Although it might sound like a good idea at first, the net effect is to create what's known as "survivorship bias." Such a bias is referencing the fact that in such circumstances, fund companies usually report the existing manager's data, effectively wiping out the old fund's track record. Along these lines, our research methodologies for this article include adjusting for survivorship bias. 

We've also been able to take advantage of Fidelity's sheer size to dig deeper into this fund family's performance. It provides us with enough actively managed mutual stock funds to analyze risk and return data spanning 30 years or more. That's key since a smaller data set statistically brings into question whether or not there's sufficient information about a fund's performance to scientifically draw conclusions — or whether we're simply being fooled by randomness in market returns.  

The following analysis of Fidelity is a part of our Deeper Look research series. We've also conducted similar studies on fund families from the likes of Vanguard, Morgan Stanley, Goldman Sachs, Franklin Templeton, T. Rowe Price and Putnam, to name just a few. (To read other IFA research reports along these lines, you can search on our site — or, the IFA App — using "Deeper Look" as the search criteria.) One universal conclusion: Active fund managers have failed to deliver on the value proposition they profess, which is to reliably outperform a risk comparable benchmark.

Controlling for Survivorship Bias

It's important for investors to understand the idea of survivorship bias. While there are 65 active equity mutual funds with 30 or more years of performance-related data currently offered by Fidelity, it doesn't necessarily mean these are the only strategies this company has ever managed. In fact, there are six stock mutual funds with 30-plus years of data that no longer exist. This can be for a variety of reasons including poor performance or the fact that they were merged with another fund. We will show what their aggregate performance looks like shortly.

Fees & Expenses

Let's first examine the costs associated with Fidelity's surviving 65 equity strategies. It should go without saying that if investors are paying a premium for investment "expertise," then they should be receiving above average results consistently over time. The alternative would be to simply accept a market's return, less a significantly lower fee, via an index fund.

The costs we examine include expense ratios, sales loads — front-end (A), back-end (B) and level (C) — as well as 12b-1 marketing fees. These are considered the "hard" costs that investors incur. Prospectuses, however, do not reflect the trading costs associated with mutual funds.

Commissions and market impact costs are real expenses associated with implementing a particular investment strategy and can vary depending on the frequency and size of the trades executed by portfolio managers.

We can estimate the costs associated with an investment strategy by looking at its annual turnover ratio. For example, a turnover ratio of 100% means that the portfolio manager turns over the entire portfolio in one year. This is considered an active approach, and investors holding these funds in taxable accounts will likely incur a higher exposure to tax liabilities, such as short- and long-term capital gains distributions, than those incurred by passively managed funds.

The table below details the hard costs as well as the turnover ratio for all 65 surviving active stock funds offered by Fidelity that have at least 30 years of complete performance history. You can search this page for a symbol or name by using Control F in Windows or Command F on a Mac. Then click the link to see the alpha chart. Also, remember that this is what is considered an in-sample test; the next level of analysis is to do an out-of-sample test (for more information see here).

Fund Name Ticker Turnover Ratio % Prospectus Net Expense Ratio 12b-1 Fee Max Front Load Global Category
Fidelity Real Estate Investment Port FRESX 38% 0.74     Real Estate Sector Equity
Fidelity Select Chemicals FSCHX 50% 0.79     Natural Resources Sector Equity
Fidelity Select Materials FSDPX 36% 0.80     Natural Resources Sector Equity
Fidelity Select Utilities FSUTX 64% 0.76     Utilities Sector Equity
Fidelity Telecom and Utilities FIUIX 60% 0.67     Utilities Sector Equity
Fidelity Select Air Transportation Port FSAIX 93% 0.85     Industrials Sector Equity
Fidelity Select Defense & Aero Port FSDAX 30% 0.77     Industrials Sector Equity
Fidelity Envir and Alt Engy Fund FSLEX 28% 0.85     Industrials Sector Equity
Fidelity Select Transportation FSRFX 52% 0.80     Industrials Sector Equity
Fidelity Select Health Care Svcs Port FSHCX 34% 0.73     Healthcare Sector Equity
Fidelity Select Health Care FSPHX 52% 0.69     Healthcare Sector Equity
Fidelity Select Biotechnology FBIOX 78% 0.70     Healthcare Sector Equity
Fidelity Select Insurance Port FSPCX 18% 0.83     Financials Sector Equity
Fidelity Select Banking FSRBX 32% 0.79     Financials Sector Equity
Fidelity Select Consumer Finance Port FSVLX 25% 0.89     Financials Sector Equity
Fidelity Select Financial Services Port FIDSX 63% 0.77     Financials Sector Equity
Fidelity Select Brokerage & Invmt Mgmt FSLBX 11% 0.76     Financials Sector Equity
Fidelity Select Energy FSENX 31% 0.85     Energy Sector Equity
Fidelity Advisor Energy M FAGNX 84% 1.40 0.50 3.50 Energy Sector Equity
Fidelity Select Energy Service Port FSESX 38% 0.91     Energy Sector Equity
Fidelity Select Consumer Staples Port FDFAX 51% 0.75     Consumer Goods & Services Sector Equity
Fidelity Select Construction & Hsg Port FSHOX 93% 0.78     Consumer Goods & Services Sector Equity
Fidelity Select Consumer Discret Port FSCPX 55% 0.76     Consumer Goods & Services Sector Equity
Fidelity Select Retailing FSRPX 46% 0.73     Consumer Goods & Services Sector Equity
Fidelity Select Leisure FDLSX 72% 0.77     Consumer Goods & Services Sector Equity
Fidelity Select Automotive Port FSAVX 56% 0.88     Consumer Goods & Services Sector Equity
Fidelity Select Communication Services FBMPX 63% 0.77     Communications Sector Equity
Fidelity Select Telecommunications Port FSTCX 58% 0.79     Communications Sector Equity
Fidelity Value Strategies FSLSX 72% 0.76     US Equity Mid Cap
Fidelity Value FDVLX 90% 0.57     US Equity Mid Cap
Fidelity Low-Priced Stock FLPSX 09% 0.78     US Equity Mid Cap
Fidelity Growth Strategies FDEGX 67% 0.63     US Equity Mid Cap
Fidelity Equity-Income FEQIX 50% 0.60     US Equity Large Cap Value
Fidelity Equity Dividend Income FEQTX 71% 0.60     US Equity Large Cap Value
Fidelity Growth & Income FGRIX 32% 0.61     US Equity Large Cap Value
Fidelity Advisor Equity Income I EQPIX 65% 0.67     US Equity Large Cap Value
Fidelity Advisor Capital Development O FDETX 26% 0.57     US Equity Large Cap Blend
Fidelity Disciplined Equity FDEQX 35% 0.71     US Equity Large Cap Growth
Fidelity Blue Chip Growth FBGRX 49% 0.79     US Equity Large Cap Growth
Fidelity Capital Appreciation FDCAX 61% 0.82     US Equity Large Cap Growth
Fidelity Contrafund FCNTX 32% 0.86     US Equity Large Cap Growth
Fidelity Advisor Equity Growth I EQPGX 52% 0.74     US Equity Large Cap Growth
Fidelity Advisor Diversified Stock O FDESX 78% 0.46     US Equity Large Cap Growth
Fidelity OTC FOCPX 48% 0.87     US Equity Large Cap Growth
Fidelity FFIDX 51% 0.48     US Equity Large Cap Growth
Fidelity Magellan FMAGX 56% 0.79     US Equity Large Cap Growth
Fidelity Growth Company FDGRX 18% 0.83     US Equity Large Cap Growth
Fidelity Stock Selec All Cp FDSSX 12% 0.63     US Equity Large Cap Growth
Fidelity Trend FTRNX 45% 0.73     US Equity Large Cap Growth
Fidelity Advisor Growth Opps M FAGOX 47% 1.30 0.50 3.50 US Equity Large Cap Growth
Fidelity Select Software & IT Svcs Port FSCSX 22% 0.70     Technology Sector Equity
Fidelity Select Technology FSPTX 107% 0.69     Technology Sector Equity
Fidelity Select Comms Equip Port FSDCX 110% 0.87     Technology Sector Equity
Fidelity Select Semiconductors FSELX 87% 0.70     Technology Sector Equity
Fidelity Select Computers FDCPX 78% 0.74     Technology Sector Equity
Fidelity Select Gold FSAGX 46% 0.76     Precious Metals Sector Equity
Fidelity Pacific Basin FPBFX 27% 1.11     Asia Equity
Fidelity Europe FIEUX 39% 1.03     Europe Equity Large Cap
Fidelity Advisor Emerging Markets FEMKX 34% 0.92     Global Emerging Markets Equity
Fidelity Worldwide FWWFX 112% 1.05     Global Equity Large Cap
Fidelity Canada FICDX 11% 0.88     Equity Miscellaneous
Fidelity Overseas FOSFX 41% 1.04     Global Equity Large Cap
Fidelity Advisor Overseas M FAERX 46% 1.71 0.50 3.50 Global Equity Large Cap
Fidelity International Discovery FIGRX 34% 1.02     Global Equity Large Cap
Fidelity Convertible Securities FCVSX 147% 0.63     Convertibles

Please read the prospectus carefully to review the investment objectives, risks, charges and expenses of the mutual funds before investing. Fidelity Investment prospectuses are available at:  https://www.fidelity.com

On average, an investor who utilized a surviving Fidelity active equity mutual fund strategy experienced an annual expense ratio of 0.81%. 

These expenses can have a substantial impact on an investor's overall accumulated wealth if they are not backed by superior performance. The average turnover ratios for surviving active equity strategies from Fidelity was 51.11%. This implies an average holding period of 23.48 months.

By contrast, most index funds have very long holding periods — decades, in fact, thus deafening themselves to the random noise that accompanies short-term market movements, and focusing instead on the long-term. Again, turnover is a cost that is not itemized to the investor but is definitely embedded in the overall performance.

Performance Analysis

The next question we address is whether investors can expect superior performance in exchange for the higher costs associated with Fidelity's implementation of active management. We compare all of its 71 strategies with data for 30 or more years against its Morningstar assigned benchmark to see just how well each has delivered on their perceived value proposition. We also use the oldest share class of each fund, which sometimes are older than its assigned benchmark. In those cases, comparisons can only be made for the length of time that the benchmark has data available. 

We have included alpha charts for each of their current strategies at the bottom of this article. Here is what we found:

  • 36.62% (26 of 71 funds) have underperformed their respective benchmarks since inception.

  • 63.38% (45 of 71 funds) have outperformed their respective benchmarks since inception, having delivered a positive alpha.

Here's the real kicker, however:

  • 5.63% (4 of 71 funds) wound up outperforming their respective benchmarks consistently enough since inception to provide 97.5% confidence that such outperformance could persist (as opposed to being based simply on random outcomes).

So, relatively few — less than 6% — of Fidelity's active managers were able to deliver statistically significant benchmark outperformance. The inclusion of the statistical significance of alpha is key to this exercise, as it indicates which outcomes are due to a skill that is likely to repeat and those that are more likely due to a random-chance outcome.

Such a finding supports other Deeper Look studies we've conducted looking at different fund families and active managers. 

Another caveat worth noting about this performance analysis of Fidelity is how many U.S. sector and international country or region-specific actively managed equity mutual funds are part of this family's lineup. By their very nature — i.e., taking a narrower investment focus and turning over positions at higher rates — these sort of specialty fund managers can expose investors to greater risk.

These red flags (heightened concentration risks and higher turnover rates) serve to temper any top-line numbers indicating that Fidelity's actively managed stock mutual funds were consistent winners. Why? Of the 45 Fidelity stock mutual funds that were found to have outperformed by delivering positive alpha, the vast majority were run as a U.S. sector or international country/region-specific strategy.

That's significant since a breakdown of each fund's annual alpha over 30 years — as shown in each fund's alpha chart — shows that in almost all cases removing just a few years of relatively high positive alpha would've turned short-term winners into long-term laggards.

For example, see below the alpha chart for the Fidelity Select Computers (FDCPX) fund. Although this sector fund managed to outperform its respective benchmark — as indicated by producing a positive alpha reading during this period — look how much a single year (1999) boosted otherwise relatively lackluster performance against its assigned benchmark. Then, remove another big year (2004), and this sector fund's ability to generate positive alpha looks even less rosey. 

While volatility in returns can be exaggerated in such singularly focused investment vehicles, it's still not an isolated issue. Consider the alpha chart for the diversified Fidelity Low-Priced Stock (FLPSX) fund. Again, it generated positive alpha over the 30 years studied. Take out a single year (2001), however, and this fund's ability to outperform its assigned index looks a lot more pedestrian.

Whether targeting entire asset classes or a specific industry/geographic region, too many of Fidelity's active stock mutual fund managers appear to have benefited from relatively short bursts of high positive alpha during this 30-year period. In such an analysis, a lack of persistence by Fidelity's active stock mutual funds in sustaining outperformance against their benchmarks posed a clear and present danger for investors trying to build wealth over a lifetime.

Trying to pick the right fund and specific outperformance interval isn't just a problem for investors in this fund family. The myth of persistency in positive alpha has been debunked by the Standard and Poor's Persistence Scorecard. This ongoing research series biannually compares thousands of different mutual funds from hundreds of U.S.-based fund distributors. It tracks how consistently recent top-performers are able to keep producing winning records in subsequent years.

The most consistent finding uncovered by these S&P researchers: The number of managers remaining in the top half or quartile of their peer group over time is lower than what we would expect from chance alone.

Regression Analysis

How we define or choose a benchmark is extremely important. If we relied solely on commercial indexes assigned by Morningstar, then we may form a false conclusion that Fidelity has the "secret sauce" as active managers.

Since Morningstar is limited in terms of trying to fit the best commercial benchmark with each fund in existence, there is of course going to be some error in terms of matching up proper characteristics such as average market capitalization or average price-to-earnings ratio.

A better way of controlling these possible discrepancies is to run multiple regressions where we account for the known factors (betas) of expected return in the U.S. (i.e., market, size, relative price, etc.).

For example, if we were to look at all of the U.S.-based equity strategies offered as a part of the Fidelity funds family that've been around for at least the past 30 years, we could run multiple regressions to see what each fund's alpha looks like once we control for the multiple betas that are being systematically priced into the overall market.

The chart below displays the average alpha and standard deviation of that alpha for the past 30 years through 2020. Screening criteria include funds with holdings of 90% or greater in U.S. equities and uses the oldest available share classes. 

As shown above, 12 of the mutual funds studied had positive excess returns over the stated benchmarks. All of these funds were either sector-focused or country-focused strategies. At the same time, three equity funds produced a statistically significant level of alpha, based on a t-stat of 2.0 or greater. However, two of these were U.S. sector funds. (A review of how to calculate a fund's t-stat can be found at the end of this report — right after the presentations of all Fidelity funds individual alpha charts included in this study.)

Conclusion

Like many of the other large active managers, a deep analysis into the performance of the Fidelity family of funds has yielded a not so surprising result: Active management is likely to fail many investors. This is due to market efficiency, costs and increased competition in the financial services sector.

As we always like to remind investors, a more reliable investment strategy for capturing the returns of global markets is to buy, hold and rebalance a globally diversified portfolio of index funds.

Below are the individual alpha charts for Fidelity's actively managed mutual funds. Each of these funds have 30 years or more of returns data. As we stated earlier in this article, though, some of these funds are older than the Morningstar-assigned benchmarks. In those cases, comparisons can only be made for the length of time that the benchmark has data available. 

 


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Here is a calculator to determine the t-stat. Don't trust an alpha or average return without one.

The Figure below shows the formula to calculate the number of years needed for a t-stat of 2. We first determine the excess return over a benchmark (the alpha) then determine the regularity of the excess returns by calculating the standard deviation of those returns. Based on these two numbers, we can then calculate how many years we need (sample size) to support the manager's claim of skill.



This is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. Performance may contain both live and back-tested data. Data is provided for illustrative purposes only, it does not represent actual performance of any client portfolio or account and it should not be interpreted as an indication of such performance. IFA Index Portfolios are recommended based on time horizon and risk tolerance. Take the IFA Risk Capacity Survey (www.ifa.com/survey) to determine which portfolio captures the right mix of stock and bond funds best suited to you.  For more information about Index Fund Advisors, Inc, please review our brochure at https://www.adviserinfo.sec.gov/ or visit www.ifa.com.