You can see Fidelity’s winning edge is alive and well through its CEO Abigail Johnson. She runs it like a family business—for the long-term. It’s private, not publicly traded. She doesn’t have to answer to the whiny Wall Street analysts every quarter.
When I worked at Fidelity I remember how the Johnson family had their finger on the pulse of their company. Chairman Edward “Ned” Johnson III believed and lived by the philosophy of Kaizen—constant improvement. There was never a shortage of money to invest in making Fidelity’s technology platform better. It’s the best in the business.
Last year was the year of passive (index) investing. Fidelity is known for its actively managed funds. $16 billion flowed out of Fidelity while $216 billion flowed into Vanguard, a record.
I like some of Vanguard’s funds, especially their balanced funds Wellesley and Wellington. I’m guessing most of the money went to their passive index funds like the 500 Index.
Stock indices are not well-understood by investors. Ask someone how to calculate the market-cap of a company and there’s often a blank stare. The 500 Index is a market-cap weighted index, meaning the companies with the highest market-cap have the highest weighting.
If the money going to Vanguard is going into index funds (it is) then how can this be a good value? The 500 Index has turned into a growth fund. I’ll let growth stocks have their 15-minutes of fame.
I much prefer investing in out-of-favor areas or “value” stocks. Value stocks tend to pay outsized dividends—because they’re out-of-favor. Get it? Over time it’s a much better way to hold onto your money. Markets are cyclical.
Kirsten Grind writes at the Wall Street Journal:
Despite the numbers, Ms. Johnson believes investors’ push into passive funds is a temporary trend and will reverse when performance improves, according to executives who are familiar with her thinking. “She believes it’s cyclical,” said Brian Hogan, president of Fidelity’s equity division.