Strong markets helped push Fidelity Investments’s operating profit to a record $2.6 billion last year, as the mutual funds and retirement accounts the firm manages for clients also fattened to nearly $2 trillion.
It was another year of recovery for the Boston-based investment giant, and the industry in general, since the financial crisis not only hurt the bottom line but put a dent in customers’ appetite for stock funds. Fidelity chairman Edward C. “Ned” Johnson 3d said in the company’s annual report Wednesday that the bull market sending stocks up 32 percent last year was like a replay of 2012 “only better.’’
Not given to overly sunny reviews of his firm’s business, Johnson nevertheless said in his annual letter to investors that “Investors had a lot to feel good about’’ in 2013. And Fidelity benefited richly, as revenues climbed 8 percent to $13.6 billion and operating profit climbed 13 percent. Total customer assets under administration rose 19 percent to $4.6 trillion.
In the report, Johnson acknowledged the ascendance of his daughter Abigail at the firm, saying she assumed an “expanded leadership role as president’’ in September. The elder Johnson called this a “natural progression for Abby, who over the past 25 years has taken on increasingly more challenging roles overseeing virtually every aspect of Fidelity’s operations.’’
Looking forward, he said, “I have complete confidence she will continue to serve our customers and our firm exceedingly well in the future.’’ Ronald O’Hanley, who had held the No. 3 position at the firm under Abigail Johnson recently announced his departure.
Meanwhile, Abigail Johnson introduced some of her own priorities in the report, which serves as a yearly window on the privately held firm’s performance and the thinking of the billionaire father and daughter who run the company.
For instance, she emphasized the importance of integrity, and Fidelity’s ability to serve customers saving for retirement as well as providing cutting edge technology and service.
Fidelity increasingly brings in new customers not by having the hottest mutual fund on the street but by having a massive reach with its products, from packages of funds aimed at specific retirement dates for workers to brokerage services for hedge funds.
She noted that the firm is looking to engage more with women in the future, as they become bigger investors. “Across the board, women are unhappy with our industry,’’ Johnson said. While some lack confidence in investing, many are “becoming increasingly powerful in our economy,’’ accumulating wealth and out-earning their spouses.
Johnson also said investors should expect strong investment performance from Fidelity. The firm’s mutual funds ourperformed 66 percent of their peers last year, down from 69 percent in 2012. The five-year numbers improved, as the dismal 2008 returns fell out of the mix: Fidelity funds beat 74 percent of the competition over the five-year period, up from 68 percent previously.
But even a soaring stock market didn’t drive traffic into Fidelity’s stock funds last year. Equity funds sold directly to investors saw outflows of $7.8 billion, an improvement from the $32.4 billion customers withdrew in 2012.
However, those same funds sold within target-date retirement accounts and other asset allocation strategies brought in $9.2 billion to the firm.
John Bonnanzio, editor of the Fidelity Insight investor newsletter, said the positive markets were generally a wind at Fidelity’s back last year.
“When the market goes up, the all-important equity funds are going to have a good year,’’ Bonnanzio said. “That means more assets and it means more income.’’
In a bad year for bonds, Fidelity’s investment-grade bond funds improved relative to their peers. High-income funds, however, were in the middle of the pack, outperforming fewer competitors than in 2012.
Edward Johnson said Fidelity “is likely to face a host of challenges in 2014,’’ citing “aggressive competitors,’’ volatile markets and unpredictable political and regulatory environments. He thanked employees and urged them to stay “sharply focused’’ on serving customers.
His daughter also talked about wanting to keep employees happy, saying, “We need to provide as good an experience for our associates as we do for our customers.’’
Indeed, part of what Johnson must do in her larger role is hold together a firm that has at times fostered ruthless competition among executives, and shifted offices to less costly sites in New Hampshire and Rhode Island that were not always convenient for employees.Continued...