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Fidelity slows with the flow

As the world&#39s biggest privately owned fund company, Fidelity has for many years blazed a trail for rivals to follow. But there is a sense among some IFAs that its crown may be slipping as it begins to face increasingly stiff competition from its traditional challengers.

The most immediate sign that things may not be going well is Fidelity&#39s third-quarter net retail sales figures which stand at just £7m. In comparison, rivals such as Schroders and Newton had net retail sales of £121m and £214m respectively.

As Fidelity points out, however, its figures are skewed by the fact that it uses the IMA classification of institutional for its sales through unit-linked contracts. If it did not, industry sources believe it would have made it into at least the top 10 biggest net retail sellers in Q3 – a view confirmed by Fidelity.

Nevertheless, it is clear that, in common with other major groups with massive existing books of business, Fidelity is seeing huge redemptions. According to a confidential report, it saw £356m go out the door in Q3, more than Barings (£339m) and Invesco UK (£276m), which had the second and third highest.

But Fidelity&#39s redemptions are believed to have remained fairly static, which suggests that swings in the company&#39s net retail sales are largely down to fluctuating inflows.

One fund manager says: “It has so much existing business that it has to sell bucketloads just to keep up with the fund flows – people dying, leaving or policies with links to funds maturing and so on. It has to cope with re-registration, which can lead to churning. It is the inflows that are most likely to be falling.”

As Fidelity is reluctant to provide details, it is difficult to get a clear picture but IFAs believe Fidelity must have seen sales fall off in areas where its performance has been less impressive than its direct rivals. The most obvious of these is the equity income sector which has been a cornerstone of recent successes for groups such as Invesco and Credit Suisse. Newton saw inflows of £177m into its higher-income fund in Q3.

Hargreaves Lansdown head of research Mark Dampier says: “The problem is that Fidelity is not covered in core areas. It does not have a core UK fund, which you need to have. It has the special situations fund but how much of that can you buy? It is not really a core holding. Fidelity has got chinks in its armour.”

Dampier cites the managed international fund, which has been one its poorest products, as an example of less than brilliant performance. But Fidelity&#39s biggest problem, he says, is that it lacks an equivalent of a core star manager such as Tim Russell, who runs Cazenove&#39s UK growth & income fund, which has pulled in more than £400m since launch 10 months ago.

Another issue is Fidelity&#39s fund manager changes over the past 18 months. Not only has star manager Anthony Bolton stopped running European money, it also has seen Fergus Shiel – John Muresianu&#39s successor on the giant American fund – leave this April after less than a year in charge.

It has also switched managers on the South-east Asia and Japan funds.

Taken together, this is a major changing of the guard for a house that has been among the most stable in recent years.

Executive director Paul Kafka says: “Our flow of young analysts becoming junior then senior managers is very good and the replacements are generating stellar performance. If people looked closely they would realise we are getting stronger, not weaker. Perhaps we need to communicate the strengths we have better.”

Almost all the replacement managers have generated first-quartile performance since they were appointed, with most significantly outperforming their predecessors.

But despite this endorsement of its policy, not all IFAs are convinced that the analyst approach is without its downside.

Bestinvest fund research analyst James Calder says: “There are some pros but what Fidelity loses is a kind of hybrid figure, someone who has worked somewhere else who can bring that experience to bear. Fidelity is just becoming less the group of first choice.”

Fidelity, however, points to a recent independent survey which shows it is strengthening its position among IFAs, with usage now at 69 per cent, compared with Invesco Perpetual in second place with 47 per cent. In terms of advisers&#39 view of recent fund performance, Fidelity also dominates. This, it argues, is proof that most IFAs disagree with the higher-profile commentators who are suggesting it is on the wane.

Managing director Robin Threadgold says: “I do not think these people are representative of the broader IFA marketplace. When they are commentators they sometimes step beyond their field of knowledge. They know nothing of about how well or badly a firm is working commercially.”

But are they wrong to suggest that Fidelity relies too heavily on its special situations fund, which accounted for almost half of its retail sales in Q3?

Threadgold argues that most groups have a fund which sells more than any other and points out that Fidelity is doing well in terms of relative share with its European, global equity and American funds.

It also has six funds on Hargreaves Lansdown&#39s Wealth 150 list of recommended funds, although this is several short of Invesco, New Star and Jupiter. It shows that the competition has raised its game but not yet, perhaps, to the extent that Fidelity can be toppled.

A senior industry source says: “Fidelity&#39s dominance is being rescinded and I suspect the days of its significant advantage have gone. But there is no doubt that it is still an immensely capable house.”


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