Advisors Can't Rely on Fidelity Alone

Fidelity Investments may have never become a behemoth without the rise of no-load investing during the great bull market of the 1980s and 1990s. Hot-performing funds like Fidelity Magellan FMAGX, run by the famed Peter Lynch in the 1980s, attracted the dollars of do-it-yourselfers. It launched dozens of new funds to keep the dollars coming and built a vast brokerage platform consisting of thousands more no-load funds to keep those dollars in-house. But Fidelity isn't one to let a big market go untapped, and in the 1990s and 2000s, it bulked up its lineup of load-bearing funds geared toward financial advisors. In all, there are 89 of them, covering nearly every investment category. By March, Fidelity Advisor funds had nearly $100 billion in assets. If the Advisor lineup was its own fund family, it would be the 15th largest, bigger than Hartford, MFS, and American Century.

Advisors confront the same maddening attributes of Fidelity's investment culture as retail investors. Aside from the aging Fidelity patriarch, Edward Johnson III, who has been the firm's chairman since the 1970s, the firm lacks the organizational stability of big competitors like American Funds. Turnover has been high in both the executive and portfolio-management ranks. In contrast to American, whose funds share a common investing ethos and are run by seasoned investment professionals, there's no one way to run money at Fidelity, and the quality or experience of its portfolio managers can vary widely.

The source of those negatives, though, also fosters Fidelity's biggest strengths. Because it doesn't impose rigid, one-size-fits-all constraints, Fidelity managers have wide latitude to implement their own investment strategies. Many talented investors, such as Peter Lynch, Will Danoff, and Joel Tillinghast, have emerged from this culture, which affords them the freedom to think and invest differently. Our favorite Fidelity Advisor funds are led by managers who have put this freedom to good use.

Fidelity's talent isn't distributed broadly enough for investors to rely on its Advisor lineup alone, however. While much of the lineup might appeal to investors with limited choices, only a handful is compelling enough to choose over better, non-Fidelity alternatives. Others, especially many of its core offerings in the large-blend arena, are just too bland to choose at all. In fact, our least-favorite Fidelity Advisor funds are not offerings where the managers use their freedom unwisely, but ones where we're not convinced that they have enough freedom to stand out.

Here are our favorite Fidelity Advisor funds and ones that advisors should best avoid.

Best of the Bunch

Fidelity Advisor New Insights FNIAX
Simply put, manager Will Danoff is among the best investors in the business. In his two decades at Fidelity Contrafund, which he runs in the same strategy as this fund, Danoff has smoked most large-growth funds, not to mention the broad market indexes. He has succeeded by investing anywhere company fundamentals are improving, allowing him to cast a wide net: His top holdings include both Google GOOG and Berkshire Hathaway BRK.A. Danoff manages too much money to trade based on short-term factors. (Between this fund and Fidelity Contrafund, he oversees more than $70 billion.) But focusing on the long term means he can sniff out opportunities that his shortsighted competitors miss. For a growth-leaning core holding, this fund is an outstanding choice. PAGEBREAK

Fidelity Advisor Equity Growth FAEGX
Manager Jason Weiner counts Danoff as one of his mentors, and it shows. His style is eclectic, and he's unencumbered by traditional notions of what constitutes a growth stock. Unlike Danoff, however, Weiner isn't constrained by asset size, freeing him to employ his fast-trading, sector-betting strategy. His approach can backfire; after rightly trimming his once-outsized technology stake in early 2008, for example, he wrongly loaded up on fast-growing industrials, leading to bruising losses for the year. Weiner, though, has usually gotten it right. This fund is too volatile and unpredictable to be a core holding, but it's a great complement to one.