(2 of 7)
In mutual funds, Fidelity has led the way in customer service, and it aims to distance itself from competitors. The company pioneered such techniques as automatic transfers over the telephone, and is developing a slew of advanced phone and computer products to speed the transactions. Fidelity also sees new markets in the thousands of corporations for which it administers 401(k) plans (including this magazine's parent company, Time Warner). It wants to persuade those customers to let it handle data-dense departments such as medical insurance, human resources and payroll as well. The attraction for corporations is lower cost. The attraction for employees is one-stop shopping for everything from address changes to changing their pension contributions. The attraction for Fidelity is a very profitable business and the opportunity to develop a vast base of customers. Lastly, the company wants to export the whole works to countries such as Japan, where mutual funds and pension plans are decades behind those in the U.S.
The common denominator to all this is technology. Johnson is a techno-junkie who pours more than $500 million a year into making Fidelity a state-of-the-art operation. In its five phone centers around the country, customer reps have the most sophisticated terminals in the industry. The computer center in Dallas, which handles all the market data fed to analysts as well as Fidelity's trades, is far more advanced than any other such facility in the securities business. "It feels like NORAD," says an employee. Johnson's early decision to invest in the software and computer capacity to service the 401(k) business was crucial to Fidelity's rapid growth. But ultimately, neither strategy nor technology will matter if Fidelity can't deliver superior returns to investors.
Johnson, along with other Fidelity executives, insists that the company's homegrown style of managing portfolios doesn't need much fixing. Fidelity's rise to the top of the industry has been underpinned by what is called bottom-up investing-- basically outworking the competition, digging deeper for information, discovering growth companies before anyone else does and holding on to them until they blossom.
And Johnson is vowing to stick with it. If Johnson were still running the Magellan Fund at Fidelity today, he would arrive at Boston's One Federal Street, where the 48 fund managers and 81 analysts of the equity division toil. The atmosphere is more subdued than you would imagine in a place where billions of dollars are riding on the employees' bets. The staff is spread over three floors that are connected by an internal staircase, and stock analysts and fund managers wander around a lot, sticking their heads into one another's offices and trading information.
Sitting in his modest office, Will Danoff, manager of the nearly $19 billion Contrafund, talks about the huge sum of money he is investing. Danoff is a star--the fund's average annual return between 1990 and 1995 was about 22%, vs. 14% for the S&P 500 for those years. Printouts and annual reports are stacked on his chairs, desk, cabinets and floor; almost hidden in the mess are four computer screens. On one wall Danoff has hung a printout with a quote from Churchill to one of his generals: "What have you done to win the war?"