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Fidelity's 2016 Scorecard: Leaders and Laggards

Morningstar's Katie Reichart reviews fund performance, ratings changes, and manager and leadership news at Fidelity.

Fidelity's 2016 Scorecard: Leaders and Laggards

Karen Wallace: Hi, I'm Karen Wallace for Morningstar. As 2016 winds to a close, we thought we'd take the opportunity to check in on how some of the largest fund companies have done this year. Here to discuss Fidelity is Katie Reichart. She is an associate director in the manager research group.

Katie, thanks so much for being here.

Katie Reichart: Thanks for having me.

Wallace: So, first, let's talk a little bit about performance sort of asset class by asset class.

Reichart: Sure. Well, if you look at diversified U.S. equity funds for Fidelity through mid-December, little more than half of the funds beat their category averages. I think growth in general has underperformed this year. So, I think that was a bit of a headwind for some Fidelity funds since that's what they are really known for. On the international equity side, you saw under half of the funds outperforming their category averages, so a little tougher year for international overall and Fidelity especially. On the fixed-income side, you had about half of the funds beating their category averages and the on the allocation side, it was about three fourths.

Wallace: Let's turn to some of the best performers and sort of look at why they outperformed this year, maybe starting with New Millennium maybe.

Reichart: Yeah, that was a top performer in the large growth category and that's really benefited from John Roth's bet on energy. The fund was a little sluggish the past couple of years since he was a little early on that call, but it's paid off this year. Also, Mid-Cap Stock is another outperformer which he also runs.

Wallace: OK. And Large Cap Stock and Growth & Income?

Reichart: Yeah. Those were Matt Fruhan's funds, and he benefited a bit from energy as well and those are large blend funds. He is a little bit value-leaning. So, he tends to have, he has made some good moves in financials as well.

Wallace: OK. Let's turn to some of the laggards and sort of talk about why they didn't perform so well, Contrafund being a big one.

Reichart: Yeah. That's a big fund. It's up a little under 5% this year, so lagging the S&P by quite a bit. He's had just some stockpicking issues and into technology and consumer discretionary. Wells Fargo was a big holding that weighted on returns a bit earlier this year. But still a great long-term record.

Wallace: And also, Low-Priced Stock, can we look at that one a little bit?

Reichart: Sure. That lands in the bottom decile of its category at this point in the year, but that fund has about a third of its assets in non-U.S. stocks. So, I think, overall, it's done pretty well considering that international has underperformed.

Wallace: Let's turn to some firm-wide news at Fidelity. Some changes at the top this year. Could you comment a little bit about those?

Reichart: Sure. So, Abby Johnson was named chairman this year to replace her father, Ned Johnson, and I think that was pretty well-telegraphed in advance when she took over as CEO a couple of years ago.

Wallace: OK. And there were some notable manager changes. First, there were sort of a shuffling on the fixed-income side. What was going on there?

Reichart: Well, we saw a few additions, portfolio manager additions to some of their fixed-income funds and I don't think it was any cause for alarm. It was more, that asset base has grown quite a bit. So, I think they are trying to resource the teams well and also just make sure they have a good range of experience with some of their very experienced managers and then some of the up-and-coming managers.

Wallace: OK. And there were some notable retirements as well. What do we see there on the equity side?

Reichart: Sure. We saw Tom Soviero retiring from Leveraged Company Stock and Value strategies. And Leveraged Company was taken over by Mark Notkin from the High Yield team, so a very strong investor. That fund did retain its Bronze rating. We're looking to see how the portfolio might change to might be a little more growth-leaning going forward, or a little less concentrated in top holdings. So, we're kind of watching that one.

Wallace: Let's round out here with a discussion of some of our ratings changes. We had a notable upgrade Fidelity Puritan. Could you discuss that a little bit?

Reichart: Sure. That fund went from Bronze to Silver, and the manager has just done a really good job with asset allocation decisions as well as securities selection and the fixed-income managers who are contributing to that fund are pretty strong as well.

Wallace: And did we have any changes on the passive side?

Reichart: We saw a couple of upgrades, Four-in-One Index Fund was upgraded from Silver and to Gold and Extended Market Index also, Silver to Gold and that was really a result of some of the fee cuts we saw on the passive side earlier this year. So, very compelling options, very cheap.

Wallace: Finally, we added some funds to our ratings coverage. Could we talk a little bit about those?

Reichart: Sure. We added Emerging Markets, which receives a Morningstar Analyst Rating of Bronze, and manager Sammy Simnegar has put together a pretty good record there and has low costs and a risk-conscious process.

Wallace: Thanks so much for being here to discuss this, Katie.

Reichart: Thanks for having me.

Wallace: For Morningstar, I'm Karen Wallace. Thanks for watching.

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