A look at the hits and misses in Fidelity's lineup.
Since launching the Morningstar Analyst Rating nearly a year ago, Morningstar analysts have assigned ratings to 80 Fidelity offerings. The rating, which is based on analysts' assessment of the people, process, performance, parent, and price behind the funds, now covers more than 1,000 funds in the United States.
As a shop, Fidelity fared decently. Of the 80 Fidelity funds Morningstar analysts rated, 45, or 56%, garnered a positive rating--that is, Bronze or better. A hefty chunk--31 funds--landed in Neutral territory, with just four earning a Negative rating. To put that in context, its largest competitors--American Funds, T. Rowe Price, and Vanguard--scored better. In American's case, 27 of 35 funds (77%) rated by Morningstar analysts notched positive ratings. At T. Rowe, 44 of 53 funds (81%) rated positively. Vanguard shone most brightly, with 74 of 80 rated funds (92%) notching positive ratings. None of the three shops had a Negative rating in its lineup.
At Fidelity, Bonds Shine
This isn't to say there aren't areas of strength. All 13 of Fidelity's Gold-rated offerings are bond funds. In part, that's because the funds are reasonably priced. More importantly, the Merrimack, N.H.-based bond operation boasts highly seasoned, tightly knit teams in both the taxable- and municipal-bond realms. The groups use cutting-edge technological tools to stay ahead of the competition, but their success also stems from sensible, straightforward processes. Jamie Pagliocco and the entire muni-bond team have delivered terrific long-term returns at funds such as Gold-rated Fidelity Tax-Free Bond
Fidelity's fixed-income lineup isn't entirely gold-plated, though. Fidelity New Markets Income
In Stocks, a Mixed Picture
Most of Fidelity's bond operation functions relatively autonomously, with separate offices in Merrimack, N.H. By sequestering the fixed-income folks from the Boston mother ship, Fidelity has helped insulate them from the cultural faults that hurt the equity funds' ratings.
To be sure, the stock funds enjoy many of the same advantages as their fixed-income counterparts. For one, costs are generally moderate. In fact, only one fund ranked Negative on price. And they play host to many experienced and talented managers, such as Contrafund's
Yet Fidelity has undermined these managers' potential for future success by letting their funds become too large. Heavy asset bases compromise their ability to successfully implement their strategies. Both Danoff and Tillinghast have coped with their respective fund's girth by moving up the market-cap ladder, for example. And while size hasn't prevented Wymer from devoting a considerable chunk of his portfolio to mid- and small caps, he hasn't been able to do so without owning a significant portion of their outstanding shares. That limits his ability to move in and out of the stocks with ease. If not for these concerns, they likely would've been Gold-rated. Even so, the funds deserve plenty of credit for staying ahead of the competition, even as it's become harder for them to do so.
Where performance deteriorates as assets grow, there's reason to be less forgiving. Fidelity Diversified International's
In other instances, lack of confidence in management's process hurt some funds' ratings. Fidelity's relatively new experiment with its multimanager approach is a case in point. Fidelity Balanced
In one of Fidelity's four Negative ratings, Fidelity Advisor International Capital Appreciation
While Simnegar's abrupt strategy shift led to a Negative rating for International Capital Appreciation, Fidelity Trend
Using the Rating
While you can use the Analyst Rating with confidence, it, like any one data point, isn't necessarily a silver bullet. A positive rating will tell you a fund is likely to outperform, but it won't tell you whether that fund is right for you. Fidelity Leveraged Company Stock
As always, you should understand what makes a fund tick, why you want to own it, and whether it really fits in with your portfolio. The Analyst Rating is a powerful tool, but it's one that should begin your investment search, not end it.
A version of this article appeared in the December 2011 Fidelity Funds Fund Family Report.