For over 20 years, I have been dedicated to making investing in Fidelity mutual funds safer and more profitable for investors, and I do this through a proprietary approach to selecting and evaluating Fidelity fund managers. My proprietary Manager Ranking System (MRS) reveals just how skilled Fidelity fund managers are at selecting stocks, bonds, or a mix of both and how they have fared relative to the market. Here at Fidelity Investor, we buy the manager, not the fund.
Investing with a manager who has demonstrated their know-how through thick and thin markets and has outperformed against benchmarks and peer groups over meaningful investment timelines makes for a smarter investment than investing with one who hasn’t. Fidelity funds who are led by Fidelity’s best and brightest managers will be winners in any portfolio.
Managers are listed in order of their “FI Ranking,” which is the rundown of a manager’s record. The FI Ranking is calculated by averaging a manager’s risk-adjusted “career” relative return and their unadjusted “front-weighted average” outperformance (I explain these terms, and others, below). All performance numbers are annualized (return per year). Remember that with relative returns, any positive number reflects benefits from active management (a 0.0 means tracking the benchmark).
The manager ranking system also shows unadjusted career relative returns and 5-, 3-, 2-, and 1-year relative returns. Gaps in these returns reflect gaps in lead management positions at Fidelity.
For the more technically minded, to the right are career volatilities for the managers’ tracking index (or indexes) and for the manager, followed by career returns and risk-adjusted returns for the index and the manager. All returns are through June 13, 2014. Ratings do not reflect any non-managing stock analyst positions, or assistant manager positions.
For comparison, the manager rankings also include the performance of some “ideal” funds as a benchmark. The Ideal Index Fund is an ideal stock index fund incurring very low expenses (0.2%) and no trading costs. The benchmark “Ideal Foreign Index Fund” and “Ideal Sector Index Fund” are likewise ideal index funds incurring low expenses (0.4%) and no trading costs. Industry-wide, most funds will (must, because of expenses and trading costs) fall behind these very tough benchmarks.
For your convenience, here’s a short explanation of some of the terms in the table:
Risk-Adjusted Relative Return Career
A manager’s return after factoring out both the fund’s benchmark (e.g., the S&P/Barra 500 large-cap growth index) and the level of risk (Relative Volatility) the manager has taken on relative to that index. Any positive number would mean very successful active management. Industry-wide, managers will on average earn somewhat negative numbers due to fund expenses (often over 1.0%), brokerage commissions and bid-ask spreads.
Front-Weighted Average (Relative Return)
The average of a manager’s career (up to 10 years), 5-year, 3-year, 2-year, and 1-year performances relative to his benchmarks.
Relative Return Career
Simply a fund manager’s annualized return over their career (up to 10 years) after subtracting out the return of a relevant benchmark index.
5-year Relative Return
A fund manager’s annualized return over the last five years after subtracting out the return of a relevant benchmark index. 3-year, 2-year, and 1-year Relative Returns are similar, but, naturally, for 3-, 2-, and 1-year periods.
Index Relative Volatility and Manager Relative Volatility
Volatility is the uncertainty of a fund’s return. A fund which goes up about the same each month (i.e., a money market) has very low risk, while a fund whose performance is more erratic has a higher relative volatility and is said to be more “risky.” Relative Volatility is the standard deviation of monthly returns for a period (here, for the manager’s career, up to 10 years), divided by the same standard deviation figure for the S&P 500 index.
Return Index Career and Return Manager Career
Simply the average annual return for the manager’s benchmark indexes, and the manager’s own funds, over the manager’s career at Fidelity (up to 10 years).
Risk-Adjusted Index Career and Risk-Adjusted Manager Career
Figures that permit return comparisons between funds of varying levels of risk, by factoring out differences in volatility. A fund’s risk- adjusted return is the return one would obtain with a portfolio holding the fund and enough Cash Reserves or similar zero-volatility investment (or, for low-risk funds, enough margin) to maintain the risk level of the S&P 500. For a fund with a Relative Volatility of 1.25, a portfolio would be constructed of 80% of that fund, and 20% of a cash position, giving the hypothetical portfolio a volatility of 1.00. The returns for this hypothetical portfolio are that fund’s Risk-Adjusted Return. For funds compared to an index other than the S&P 500, risk-adjusted return is also calculated for that index. (The risk- adjusted return for the S&P 500 is the same as its actual return, since its Relative Volatility is always exactly 1.00.)