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Fidelity Revamps Equity-Income Funds

European-stock funds come out winners this month, and more.

Morningstar Fund Analysts, 10/27/2011

Fidelity is overhauling its equity-income funds in an attempt to boost income. The firm is giving new managers, new mandates, and a more distinctive look to Fidelity Equity-Income FEQIX and Fidelity Equity-Income II FEQTX.

Stephen Petersen, who managed Fidelity Equity-Income for more than 18 years, is being replaced by a three-manager team of James Morrow, Adam Kramer, and Ramona Persaud. Morrow will serve as lead manager, with Kramer running a high-yield and convertible sleeve and Persaud running a global equity sleeve.

Under Petersen, the fund closely hugged its benchmark, the Russell 3000 Value Index, and delivered middling returns during the trailing three, five, 10, and 15 years through September. During those time periods, investors had to put up with higher volatility--measured by standard deviation--than the fund's large-value category average. With new managers at the helm, the fund will have greater leeway to use fixed income and convertibles to boost yield. For a better sense of how this trio will run the fund, investors can look at Fidelity Advisor Equity Income FEIRX, which Morrow and Kramer have managed since April and will continue to manage.

Fidelity veteran Scott Offen is taking the lead at Fidelity Equity-Income II--succeeding Petersen, who had managed there since 2009. Offen will run the fund more as a pure equity portfolio, with a focus on increasing yield. Offen has managed Fidelity Value Discovery FVDFX since 2002, with the fund modestly outperforming its benchmark during that time. He also manages Fidelity Advisor Equity Value FAVAX, with the fund's returns slightly lagging its benchmark since he took over in late 2006. Offen will continue to manage his other charges in addition to Fidelity Equity-Income II.

Under Petersen, the funds had less of an income focus, which left Fidelity without a true equity-income fund. It remains to be seen if new management can increase income returns, but investors can certainly expect the funds to strike a bolder profile.

European-Stock Funds Come Out on Top, for Now
The results of the EU summit in Brussels on Thursday eased fears of financial contagion and kicked off a morning market rally. But a deeper look at the data shows that Europe-focused equity funds have already been on a strong run for the past month. European-stock funds are down roughly 9.75% thus far this year, placing them in the middle of the international fund category pack. But during the trailing one-month period, European-stock funds have returned more than 11% on average, making them the top-performing category not only among international but also domestic and fixed-income funds. JPMorgan Russia JRUAX led the way with a 16.8% trailing one-month return through Oct. 26. But emerging Europe was not the only story. Vanguard European Stock Index VEURX, which owns primarily large-cap stocks and eschews emerging Europe including Russia, returned 12.7% during the trailing month--making it a top-quintile performer in its category.

Northern Funds has a New Year's present for its investors. Starting in 2012, the fund company will reduce the total annual fund operating expenses for 35 equity, bond, and fixed-income funds, including a 25-basis-point decrease for Northern Large Cap Value NOLVX and Northern Small Cap Core NSGRX and a 45-basis-point decrease for Northern Fixed Income NOFIX.

Nicholas Price joined Fidelity International Small Cap FISMX as a co-portfolio manager. Price, who succeeds outgoing manager Noriko Takahashi, will be responsible for the fund's investments in Japan.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.

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