Now for something different at Fidelity: Event-driven investing

Hedge strategy coming to firm where earnings, fundamentals rule the day

Oct 9, 2013 @ 10:15 am

By Jason Kephart

Fidelity Investments is tapping an old hedge fund strategy as the basis for its next mutual fund, but it isn't going full-bore into the alternatives world.

The company plans to launch the Fidelity Event Driven Opportunities Fund, pending approval from the Securities and Exchange Commission, according to a recent filing.

Event-driven investing is a popular hedge fund strategy that singles out companies that are going through management changes, mergers, restructurings, spinoffs or other similar corporate events.

Unlike hedge funds or liquid-alternatives funds that specialize in event-driven investing, the Fidelity fund won't use shorting to take advantage of corporate actions that could send a company's stock price lower.

Still, it is a departure from the norm at Fidelity, where earnings and fundamentals rule the day for many of the company's portfolio managers.

“It's something completely different,” said Jim Lowell, editor of the Fidelity Investor newsletter.

“It's looking at manager fundamentals rather than earnings fundamentals,” he said. “It's another way to look at the same data, same markets and same companies but using a different kind of metric to include or exclude names and determine weightings.”

Fidelity spokesman Sophie Launay said that the fund falls into the category of funds such as the $44 billion Fidelity Low-Priced Stock Fund (FLPSX), which is run by superstar stock picker Joel Tillinghast and a team of six other managers.

The Low-Priced Stock Fund invests only in companies that have a share price of less than $35 at the time of purchase.

“These thematic funds have been both successful and popular with investors seeking innovative, complementary investment strategies,” Ms. Launay said.

The Event Driven Opportunities Fund doesn't have the same star power behind it as the Low-Priced Stock Fund, at least not yet. It will be managed by rookie mutual fund manager Arvind Navaratnam, a research analyst since 2010, who will have the chance to earn his own recognition.

“Expectations are high,” Mr. Lowell said. “Arvind had to claw his way to the top by delivering better ideas than his peer group, and that's a strong peer group.”

If hedge funds and liquid alternatives that use an event-driven strategy are any guide, the bar for success isn't particularly high in the event-driven world.

The Morningstar MSCI Event-Driven Index was up just 1.17% year-to-date through August, compared with the S&P 500's 16.15% return over the same time period.

The $89 million Arbitrage Event-Driven Fund (AEDNX), the largest event-driven mutual fund, was up about 2.7% over the same time period.

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