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By Katie Rushkewicz Reichart, CFA | 06-13-2013 12:00 PM

4 Questions for Fidelity

Fidelity's Ron O'Hanley answers our questions on the balance between consistency and outperformance, the role of its multi-manager funds, enhancements to its fund boards, and the firm's vision for ETFs.

Katie Reichart: I'm Katie Reichart with Morningstar. I'm here with Ron O'Hanley of Fidelity, who is president of asset management and corporate services.

Ron, thanks for being here.

Ron O'Hanley: Thank you, Katie. It's good to be here.

Reichart: I wanted to ask about Fidelity's objective of having very consistent performance for funds. How do you balance that with giving a manager a bit of a longer leash to let a strategy play out, even if that results in some short-term volatility?

O'Hanley: Well, you've just laid out what the balance is that we need to strike. Consistency is important in the sense that we need to deliver the kind of returns and outcomes that investors expect. So, we need to say what we do and do what we say. Many times when you see performance that looks like this, that's not actually what we've said we do, so therefore we're not delivering what investors want. So, that term "consistency" is meant to mean that what we will deliver for you is the kind of returns that you expected, or the pattern of returns that you expected.

At the same time what we don't want to do is turn all active managers into quasi-passive managers. So we want to be able to keep those opportunities for alpha there. So you'll see that we still have our diversified equity funds, and there we're very much giving the fund managers the reign that we need. In other cases we've put together multi-manager portfolios, where there the objective is a little bit different. But in all cases, the objective is consistency with the investor's expectations of what should be derived from that fund.

Reichart: I wanted to follow-up on the multi-manager funds that you referenced. In recent years Stock Selector funds and others have been transformed into these multi-manager Funds. Do you think that's getting laid out from the star manager approach that Fidelity has been known for?

O'Hanley: Well, it's not so much getting away from it, it's adding a different sort of alpha-seeking strategies to the marketplace. The reason why the Stock Selector and those kinds of sector-based funds, if you will, are so important to us is that it enables us to really leverage our research engine. So, if we put together funds where they are sector-neutral, and within each of those sectors, or sleeves if you will, we're asking the managers to really optimize security selection, that's something that we should be able to do well, given our focus on fundamental investing, the kind of investment we have in research, and the training that we give the portfolio managers.

So, again, to say to the broader investor world, there are a couple of ways that you can derive alpha and return from Fidelity. One is from an individual manager with a pretty broad mandate and a pretty broad reign to go everywhere and anywhere--he or she can do almost anything--to here's something that really leverages what we do in the research and portfolio management side. So it's both, not either/or.

Reichart: Yesterday at the conference Jack Bogle was pretty critical of fund boards that are overseeing 100-plus funds. How do you handle that at Fidelity?

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