WITH FIRM NEW HAND ON THE TILLER, FIDELITY HAS GAINED SOME STABILITY: PORTFOLIO MANAGEMENT SHUFFLE IS ENDED, VOWS NEW PRESIDENT POZEN

Since Robert C. Pozen took the investment helm at Fidelity Investments nine months ago, the game of portfolio manager musical chairs seems to have stopped.

Instead, the real news about Fidelity is the aura of stability that surrounds the investment management side these days.

Speaking to sister publication Pensions & Investments, Mr. Pozen says Fidelity will not shuffle managers any time soon. He says he’s comfortable with the investment management team in place now, even in the case of a fund like the $30.8 billion Contrafund, whose manager, Will Danoff, underperformed the Standard & Poor’s 500 stock index’s 33.36% return by more than 10 percentage points in 1997, returning 23% to investors.

Russ Kinnel, equity mutual fund analyst at Morningstar Inc. in Chicago, believes Mr. Pozen.

“One of the best things that has happened at Fidelity is that (Mr.) Pozen stopped the manager merry-go-round. He’s been much more straightforward about acknowledging problems and he’s done what he said he would do: provide stability.”

share the burden

Mr. Pozen says he might lessen the load on Fidelity’s more overworked managers — such as George Vanderheiden and Bettina Doulton — by moving some of their asset management responsibilities to other managers “where it’s an intelligent move” and as younger portfolio managers mature.

Mr. Vanderheiden manages the equity portions of seven mutual funds totaling $43.8 billion as of Dec. 31. Ms. Doulton managed $32.6 billion in equities as of the same date in three funds.

Mr. Pozen supports Fidelity’s practice of promoting from within. “It’s a very good system and it’s very tough. You are either in or out, based on how well you select stocks,” he says. “And besides, there is not that much good talent out there to hire. We’d rather train our own.”

The average age of portfolio managers at Fidelity is 35. “I wonder when they’re all going to start calling me ‘Gramps,’ ” says the 51-year-old Mr. Pozen.

Mr. Pozen’s decisi
on to leave things alone follows nearly two years of changes before he became CEO and president of Fidelity Management & Research Co.

In March 1996, Fidelity reassigned the managers of 26 of its 238 funds. The equity group was divided into eight teams of about six managers each, focused around similar investment disciplines and objectives.

Another shuffle affected nine managers in January 1997.

Fidelity’s chairman, Edward C. Johnson III, explained the first move in the company’s 1996 annual report: “While it would have been easier to make only a few changes, we decided to use this opportunity to rethink how we could best leverage our resources and talent. ”

Performance, relative to peer funds, generally has improved, Mr. Pozen says. The total of Fidelity stock funds with returns in the top half of their peer groups rose to 62% in 1997, from 46% in 1996, he notes.

Bond funds also showed improvement, with 80% of Fidelity’s bond funds in the top half of their peer groups in 1997, vs. 70% in 1996.

Rockville, Md.-based CDA/ Wie-senberger’s analysis of equity fund returns for the same period roughly matches Mr. Pozen’s. The company’s bond fund analysis, however, shows 64% of Fidelity’s offerings in the top two quartiles of their peer groups in 1997, down from 66% in 1996.

Dan Phelps, a CDA/Wiesenberger analyst, speculates that Fidelity figures might include funds that invest in convertible securities, which CDA/Wiesenberger places in a different category.

1995-1997 compaRison

When CDA/ Wiesenberger compared 1997 and 1995 peer group returns for the five Fidelity equity funds most used by defined-contribution plans, it found:

* Performance relative to peers declined in 1997 from 1995 for the $30.8 billion Contrafund, $10.5 billion Growth Company and $63.7 billion Magellan funds.

* Performance improved in 1997 from 1995 for the $21.2 billion Equity Income I and $36.6 billion Growth & Income funds.

* None of the five outperformed the S&P 500 in 1997.

Mutual fund analysts say managers o
f Fidelity’s big equity mutual funds seem more interested in following their investment styles than in beating the market.

“I think Fidelity is recognizing that 401(k) plan sponsors don’t necessarily want funds that shoot the lights out. They want style consistency,” says Morningstar’s Mr. Kinnel.

“These five Fidelity funds have begun to behave more like people expect them to and to match the marketing descriptions of the funds Fidelity provides,” says Ivan S. Cliff, vice president of data bases and performance measurement at Callan Associates Inc. in San Francisco, who analyzed the funds’ styles.

Magellan, for example, is sold as a growth fund. Using returns-based analysis, Mr. Cliff found Magellan performed like a growth equity fund before 1990, but developed a huge value bias in the early 1990s, but in 1997, moved again toward growth.

Mr. Pozen says attention to style purity is being paid primarily to the core equity funds most used by institutional investors such as 401(k) plans, rather than across the board.

“We are a big enough fund house that we can have different kinds of funds available for different kinds of investors,” he says.

“There are still a lot of people who want to swing for the fences, and we can serve them, with funds like Trend, as well as institutional investors with more core equity options.”

Crain News Service