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Fund Times: Our Take on the Latest Fidelity Executive Changes

Plus, news on Cohen & Steers, Oppenheimer, and Putnam.

Morningstar Analysts, 08/13/2007

The year 2007 has been filled with changes at Fidelity's executive level.

First, Stephen Jonas, who headed up the mutual fund division, retired in January. Then Robert Reynolds, Fidelity's chief operating officer, stepped down in April. July brought news that sales and marketing whiz Rodger Lawson was returning to Fidelity after 15 years to oversee most of the company--although not the mutual fund group. Then, this week, Ellyn McClogan, long-time head of Fidelity's brokerage operation, announced she was leaving. McClogan, like Reynolds before her, was mentioned as a possible successor to Fidelity CEO Ned Johnson. Her surprise departure demonstrates the difficulty of handicapping corporate succession at Fidelity. Johnson's daughter Abigail, current head of the employer services division and one-time mutual fund chief, reports to Rodger Lawson in Fidelity's new organizational structure.

All this turnover is unsettling. But it's difficult for anyone on the outside, and even most on the inside, to interpret these personnel moves and determine their implications. Fidelity is a private company controlled by the Johnson family. By all accounts, Ned Johnson remains, at 77, highly involved in the day-to-day operations of the company and, crucially for investors, the mutual fund division. That's not a bad thing. Johnson is a former star fund manager. Although he has grown Fidelity into a sprawling empire with interests extending far beyond mutual funds, Johnson has never let the firm abandon its roots as an investment shop. Fidelity's domestic equity funds, which have been a mixed bag during the 2000s, have mounted a strong 2007 campaign. It's too soon to tell whether the turnaround has legs and whether it is linked to the massive research build-out Fidelity launched in 2005. What is clear is that Johnson is extremely focused on righting the ship.

Fidelity Prepares for Growth in Asset-Allocation Funds
Fidelity Investments is taking steps to strengthen its asset-allocation funds. Ren Cheng, previously a comanager on Fidelity's Freedom Funds lineup--a group of target-date retirement funds--has been named CIO of Fidelity's Allocation Group. This group oversees Fidelity's 529 plan offerings, its Strategic funds lineup, and the Fidelity Four-in-One Index FFNOX, to name a few. Chris Sharpe replaces Cheng on day-to-day duties at the Freedom funds. We're not too worried about this change. While Cheng did make asset-allocation calls at each Freedom fund, he did not pick stocks and bonds. Each Freedom fund consists of an underlying group of Fidelity stock and bond funds run by other managers.

Fund Launch Teaches Cohen & Steers a Hard Lesson
Cohen & Steers European Realty
EURAX needs a pick-me-up after an ill-timed launch. The real estate specialty firm launched the fund in early April. In the three months ended Aug. 8, the fund lost 12% as volatility returned in many markets across the globe. This launch highlights the dangers of launching and buying a fund in an asset class that has had several years of strong performance.

Oppenheimer Transforms Large-Cap Fund
The fund formerly known as Oppenheimer Quest Value now has a new name, strategy and team. The firm renamed it Oppenheimer Rising Dividend OARDX, and it will be managed by the same team managing Oppenheimer Dividend Growth OADGX. Neil McCarthy and Joseph Higgins took the helm just a few weeks ago and have brought the portfolio nearly in line with that of Dividend Growth. They have managed middle-of-the-road relative returns there versus large-blend competition since the fund's 2005 inception. The key strategy change at Rising Dividend will be a focus not just on cheap stocks, but on those that should grow dividends 10%-15% per year on average. So, while the fund will still own some traditional higher-yielding stocks, such as utilities, it will own a mix of faster-growing companies, too--and compete against the large-blend category.

Power Financial Completes Putnam Purchase
Putnam Investments now belongs to Great-West Lifeco Inc., a subsidiary of Power Financial Corp. The sale's completion marks the end of a multimonth process. On Feb. 1, Marsh & McLennan Companies agreed to sell Putnam to Great-West Lifeco, a deal shareholders of all 105 Putnam mutual funds approved in mid-May. 

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