Fido: You did what?!!? Really?

[OldShooter]

Reuters headline this morning says it all:

Special Report: Fidelity puts 6 million savers on risky path to retirement

Excerpt: " ... Since a ["Freedom Funds" target date funds] strategy overhaul that took full effect in 2014, Fidelity has substantially increased exposure to stocks, including those from volatile emerging markets. The firm also scrapped a long-held belief of sticking to pre-set allocations of stocks, bonds and other assets in target-date funds.

Instead, Fidelity portfolio managers now try to time market shifts, for instance by moving billions of dollars out of money-losing commodities bets and into Chinese stocks and U.S. tech shares, regulatory filings show. ..."

I have always had a lot of respect for Fido, but this makes me question that respect. It seems that the ship has lost its rudder.

According to Reuters, the driver for this lunatic move was the fact that Fido's fund performance was lagging Vanguard's passive target-date funds.

Here's the link: https://www.reuters.com/article/us-...ers-on-risky-path-to-retirement-idUSKBN1GH1SI

 

[Texas Proud]

I am not sure if it was FIDO, but I think it was...

Many many years ago they also got in trouble by investing a good deal of money in Mexico.... right before the peso devalued...

I did a quick look but did not see anything popping up...

 

[braumeister]

I seem to remember an interview with Abigail Johnson from a couple of years ago where she became rather vehement about actively managed funds being so much better in every way than passive index funds. Does this indicate that she has now had her philosophy permeate the company?

 

[MichaelB]

This is one of those topics that would be interesting to analyze and discuss, if only the media would do away with the outrage and focus on details and legitimate comparisons.

I seem to remember an interview with Abigail Johnson from a couple of years ago where she became rather vehement about actively managed funds being so much better in every way than passive index funds. Does this indicate that she has now had her philosophy permeate the company?

Well, from her perspective they are better - at least much more profitable for her family.

 

[MRG]

I seem to remember an interview with Abigail Johnson from a couple of years ago where she became rather vehement about actively managed funds being so much better in every way than passive index funds. Does this indicate that she has now had her philosophy permeate the company?

Have you noticed their recent spending on advertising their Wealth Management services?

I think their tiring of this race to the bottom.

 

[IMATERP]

Between 2007 - 2009 the FIDO Target date funds went down further than comparable target date funds. The other end of the spectrum was that FIDO's target funds outpaced comparable funds over the past 5 years.

The article is really focused on the near term downturn which occurred last month. Apparently FIDO's target funds did more poorly than comparable funds. There is always more heightened concern when a market goes down 10% as opposed to when the market goes up 10%.

By the way, my Parents had a significant portion in the 2010 fund and that fund ended up doing quite well in both down and up markets.

 

[Earl E Retyre]

I have a couple of small $7k IRAs in Fidelity Freedom Fund 2025. I was thinking of selling them and just putting it in VTI to keep things simple for the number of funds I own and to be more in control of my AA. After this article, I am thinking I might pull the trigger tomorrow.

 

[OldShooter]

Between 2007 - 2009 the FIDO Target date funds went down further than comparable target date funds. The other end of the spectrum was that FIDO's target funds outpaced comparable funds over the past 5 years.

The article is really focused on the near term downturn which occurred last month. Apparently FIDO's target funds did more poorly than comparable funds. There is always more heightened concern when a market goes down 10% as opposed to when the market goes up 10%.

By the way, my Parents had a significant portion in the 2010 fund and that fund ended up doing quite well in both down and up markets.

Well, I don't read the article "as focused on the near term downturn" except to make the point that the Fido strategy is risky. Like that is not obvious.

My takeaway from the article is that Fido reacted to poor fund performance by doubling down on a losing strategy and putting fund owners into situations they never signed up for, like market timing, junk and emerging markets. Duplicity and stupidity brilliantly combined in the same move. As a result, people and customer companies are bailing on the funds. As they should.

My OP was more aimed at this question: "Given what I have learned today, have I been wrong in considering Fido to be one of the good guys?"

 

[candrew]

By the way, my Parents had a significant portion in the 2010 fund and that fund ended up doing quite well in both down and up markets.

+1

Prior to E.R., I was invested in that same fund with my w*rkplace 401K.

 

[NW-Bound]

I have accounts with a few brokerages, but not with Fidelity. Nor do I own any of its funds.

However, I see something interesting here. Their performance beats the competition for the last 3 years, and people get upset for their stock picking style?

If an MF fails to beat the market, people say "of course they cannot". And if they do, they are "taking on too much risk".

Darn, people are difficult to please.

 

[Ready]

Mutual fund companies are very competitive, and one way to beat the performance of the competition is to slightly increase risk in the fund. Few customers would ever notice the difference, and for the past nine years it's worked in their favor during the bull run. But if we had a major crash and it was discovered afterward that they were exposing their customers to extra risk to try and juice their yield it would be a major issue for them.

They never guarantee any maximum amount of risk or exposure to certain equity classes so it's a bit mushy, but if they are not being consistent with their fund risk profiles and investment strategies eventually people will notice and raise a fuss. Better to find out now than during a crash.

 

[NW-Bound]

By the way, I have shifted from MFs to invididual stocks and specialized ETFs over the last few years. I am going to make my own choices instead of relying on any MF manager.

And last year, my overall return was helped in part by the EM ETFs in my portfolio.

Yes, it's about time they outperformed, as they were badly behind the US market, and sport lower P/E ratio too. Buying low is the right move in my book.

 

[Al18]

Doesn't anybody analyze their mutual funds on a regular basis anymore? I have a significant amount Fidelity Target date fund and nothing in this recent article was news to me. I started bumping up my contribution into two bond funds a few years ago to my desired stock/bond fund ratio.

 

[Cayman]

Another example of how important it is to be informed about what's happening with your money.

I'm thinking about all of the 401k participants who have Fido's Freedom target date funds. My former employer had sessions for plan participants and Freedom funds were suggested as a popular, smart choice for many investors. "Invest and forget it." While I did not choose Freedom target date funds, I'm sure that many did.

 

[Texas Proud]

I have accounts with a few brokerages, but not with Fidelity. Nor do I own any of its funds.

However, I see something interesting here. Their performance beats the competition for the last 3 years, and people get upset for their stock picking style?

If an MF fails to beat the market, people say "of course they cannot". And if they do, they are "taking on too much risk".

Darn, people are difficult to please.

I have no problem IF they are telling you what they are investing into....

FWIK, Vanguard invests their target dated funds in their index funds.... and adjust the pct. over time... so basically an AA of index...

Seems that Fidelity might not be doing this.... and if they are not, then they might (and I say might) be taking on more risks than what their investors want.... I only say this since I do remember the big drop way back when due to the peso and it came out that they were juicing the return by investing a good amount more into Mexico than they were telling people...

So, it is good if they beat if they are honest about the way they won...

 

[NW-Bound]

There's more to know before I can say it's good or bad what they did. And I am not curious enough to research, as I am not part of this at all.

I have been wondering if new investors or 401k savers know about market risks. When the next recession hits, and it does not have to be as bad as the Great Recession of 2008, there will be more headlines screaming "401k custodians did not shift into CDs, losing much money on stocks".

And then, there will be more articles saying 401k's are doomed, and that the only way to save retirees is to enlarge SS as only the government can keep that money safe.

Sorry if it sounds off-topic, but the perennial quest of people is to find an investment that only goes up and goes up good, and can never go down. If you think indexing will satisfy them, just wait and see. Oh, forgot we have seen it in 2008 already.

 

[jazz4cash]

Doesn't anybody analyze their mutual funds on a regular basis anymore? I have a significant amount Fidelity Target date fund and nothing in this recent article was news to me. I started bumping up my contribution into two bond funds a few years ago to my desired stock/bond fund ratio.

+1. I recall reading a piece a long while back that was themed " the problem with target date funds". Two things mentioned were expenses (several had significant layer in addition to the er of the underlying funds) and wide variation from one fund company to another in terms of appropriate AA for a given target date. We use the L2020 fund on TSP but it is spiked with doses of equity funds to get the mix we want.

 

[Cayman]

Doesn't anybody analyze their mutual funds on a regular basis anymore? I have a significant amount Fidelity Target date fund and nothing in this recent article was news to me. I started bumping up my contribution into two bond funds a few years ago to my desired stock/bond fund ratio.

I'd wager that most investors don't ever analyze their mutual funds - not initially... not ever.

 

[IMATERP]

Well, I don't read the article "as focused on the near term downturn" except to make the point that the Fido strategy is risky. Like that is not obvious.

My takeaway from the article is that Fido reacted to poor fund performance by doubling down on a losing strategy and putting fund owners into situations they never signed up for, like market timing, junk and emerging markets. Duplicity and stupidity brilliantly combined in the same move. As a result, people and customer companies are bailing on the funds. As they should.

My OP was more aimed at this question: "Given what I have learned today, have I been wrong in considering Fido to be one of the good guys?"

I don't disagree with you. In fact, up until a few years ago I had monies in a couple of their Target Funds. After doing some analysis and listening to some sage advice on this board, I ended up selling the funds and purchasing funds that I was more comfortable with (and a bit more defensive.)

I have a dedicated no-charge representative at Fidelity who allows me the opportunity to discuss strategies with her team and understands why my allocations are right for me (and for my parents.) The only real excess charge that I have paid to Fidelity is for a purchase on two VANGUARD funds in my account due to the fact that they are not part of Fidelity's fund network as I prefer to keep my monies at Fidelity.

Anyway, regarding this discussion - the Fidelity information is OLD NEWS. Fidelity has generally had a higher stock allocation than other lifestyle Target date funds for years. Anyone who would have compared them to other MF's over the years would have seen this.

 

[Bryan Barnfellow]

Darn, people are difficult to please.

I think Seinfeld captured your thinking perfectly

https://youtu.be/CJXejD_FEXs

-BB