Fidelity’s income dropped 18% in 2008

Fidelity Investments, the world’s biggest mutual fund company, reported today that its operating income dropped 18% last year. In the Boston-based firm’s annual report, chairman Edward “Ned” Johnson cited the market downturn of the latter half of 2008 as the primary cause of the decrease in profit. Sales fell 4%. “It was a year of painful experience for the financial services industry, a period laced with toxic investment waste and the casual use of other people’s money by a number of institutions,” he wrote in the report. Meanwhile, Fidelity’s assets under management plunged 22%, to $1.25 trillion, and assets under custody declined 23%, to $2.60 trillion, as of Dec. 31. Fidelity recently announced plans to cut 3,000 jobs, or 7 percent of its work force, in response to the asset decline and market downturn. Fund performance also suffered, with Fidelity retail funds beating 56% of their peers, down from 73% the previous year. Fidelity’s stock funds beat 36% of their peers, down from 72% in 2007, while high-income funds outperformed 23% of their peers, down from 82% the prior year, according to the report. “Overall equity performance was not where it should be and steps are being taken to bring improvement,” Mr. Johnson wrote. “Among them is the creation of small groups of more closely focused analysts and managers.” Equity funds had $34.2 billion in net outflows. This reduces the gains made with net inflows of $87.9 billion to money market funds and $2 billion to bond funds. Total net flow for the year was $55.6 billion, down 26% from 2007. Going forward, the company plans to devote more attention to government affairs, and will introduce a new marketing campaign this year, president Rodger Lawson wrote in the report.