Fidelity's Equity Division Comes Under Fire

Reports of sexual harassment and a hostile work environment have roiled Fidelity's equity division, as first reported by

. The turmoil has led to the departures of a few portfolio managers, including Gavin Baker of

Morningstar is monitoring the situation. For now, Fidelity retains its Positive Parent rating. While the reported issues within Fidelity's equity division are disturbing, it's encouraging that the firm has parted ways with some of the alleged offenders and that CEO Abby Johnson has conveyed a zero-tolerance attitude for future offenses.

What's more, the Parent rating encompasses Fidelity's entire fund complex and weighs the positive and negative aspects across asset classes. The fixed-income division, based largely in Merrimack, New Hampshire, embraces a team-oriented, risk-aware investment culture that's made it one of the industry's best. Fidelity's cost-conscious index offerings and reasonable lineup of target-date funds are other bright spots. Plus, Fidelity's equity division has made strides in recent years by more thoughtfully considering manager transitions and embracing a career analyst track to boost experience.

That said, it's crucial for Fidelity's equity division to promote a culture that allows it to attract and retain top talent, as changes within the manager and analyst ranks can be disruptive. The technology sector, for instance, is in the midst of change. Baker's ouster is notable because he was well-connected with many prominent technology companies widely held across Fidelity's equity funds, and his departure has triggered some reshuffling within the ranks. Chris Lin has filled Baker's seat at Fidelity OTC (alongside Sonu Kalra, who will be in place temporarily), vacating his role as the technology sector head, which was recently filled by Nidhi Gupta. What's more, Annie Rosen, who covered popular holding

The consumer sector has experienced significant change within the past year, though it's hard to discern the reasons. Sector head Peter Dixon will leave the firm by year-end and handed his seat at Fidelity Select Consumer Discretionary FSCPX in August 2017 to Katherine Shaw. Deena Friedman, who ran Fidelity Select Retailing FSRPX, also exited within the past year. The energy and utilities group saw a fair amount of turnover in the analyst ranks between 2016-17, too, while other sectors, such as healthcare, financials, and cyclicals, were more stable.

Notably, some of the managers named in

The Wall Street Journal

article who left or are leaving the firm at year-end did not post competitive records at their biggest fund charges.

Meanwhile, equity leadership may be more focused on promoting women as part of the fallout.

Fidelity should have extra incentive to correct the issues in its equity division: Its active equity funds experienced nearly $60 billion in outflows from January 2015 through September 2017.