Tough 2012 for Fidelity

Income fell 29% and earnings slid to $2.3 billion
MAR 13, 2013
Fidelity Investments, the second-largest U.S. mutual fund company, said that operating income fell 29% last year as fee pressure, low interest rates and redemptions from its active equity funds hurt revenue. Earnings, excluding costs such as interest and taxes, decreased to $2.3 billion, from $3.3 billion in 2011, the company said Feb. 15 in its annual report to shareholders. Revenue declined 1.2% to $12.6 billion. “Despite a challenging environment for revenue growth, Fidelity's financial services businesses made significant investments in 2012 to enhance the products, services and investment insights we offer our customers,” Edward C. Johnson III, chairman and chief executive, said in a statement. Fidelity made its succession plan clear in August when it appointed his daughter, Abigail Johnson, president. The firm has been losing market share to rivals focused on fixed-income and index-based products. The Vanguard Group Inc., a pioneer in indexing, took in $141 billion in 2012. Investors pulled a net $5.3 billion from Fidelity's asset management unit, including $35.3 billion from equity funds. Bond funds gathered $17.3 billion, while bundled and asset allocation products attracted $23 billion. Net withdrawals in 2011 totaled $36.3 billion. Fidelity's expenses grew 9% to $10.3 billion, “primarily from sizable strategic investments and related head count growth,” the company said in the report. Assets under management rose 9.5% to $1.67 trillion, helped by a 13% gain in global stocks as measured by the MSCI AC World Index. Employees control 51% of the voting shares in Fidelity; the Johnson family owns the other 49%. Mr. and Ms. Johnson each hold at least 10%, according to regulatory filings.

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