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Much as the portfolio managers may share information, they run their funds solo. The company has never favored investment committees like those at banks and at most other mutual funds; it prefers young, cocky managers and gives them independence. The classic Fidelity approach is, "Here's some money; now be a genius." Typically, a new hire out of college or business school starts as an analyst and is also given a "small" fund--something in the range of $100 million--to run. Within a few years, the analyst should become a full-time manager, overseeing a moderate-size fund that will be allowed to grow to several billion dollars. The system draws criticism. "Can 31-year-old portfolio managers manage $10 billion portfolios on their own?" asks David O'Leary of Alpha Equity Research Inc., an institutional brokerage and research firm that tracks Fidelity's sector and stock movement. "They may be brilliant M.B.A.s, but they have no history of managing money in a bear market."
Fidelity relies on its workaholic culture to ferret out true investment warriors. "Not all the fund companies are that competitive," says Eric Kobren, the publisher of the newsletter Fidelity Insight. "People watch what time the lights go on and off in the office. How often do you get voice mail from your boss at 2 a.m.? It's a very common occurrence at Fidelity. They have a higher degree of competitiveness and a higher degree of obnoxiousness."
"The cost in human capital is extremely high," says a former executive. "It's a very tough place to work. You make your 20% or they cut your head off. This is honed to a razor-edge." This man pauses. "Fidelity is a great place to be from."
Despite the scores of analysts, the latest technology and hungry, keen-eyed stock pickers, something went wrong with Fidelity's fund management in the past couple of years. In 1993, 84% of its diversified U.S. equity funds outperformed the market; in 1994 about 51% did; last year the figure dropped to a paltry 21%. So far in 1996, 29% have done better than the market.
Why is Fidelity sputtering? Says George Vanderheiden, senior vice president of Fidelity Management & Research Co., which oversees all the firm's mutual funds: "In the past, we've done very well in up markets and underperformed in down markets, because we're fully invested. But over the life of the cycle, we've beaten the market." This explanation raises a question, however: If Fidelity does exceptionally well in bull markets, why didn't it show spectacular returns in 1995, which was one of the best years the market had in this century?
Results for April this year showed that for only the second time in two decades, the three-year return of Magellan had slipped below that of the S&P 500. Jeffrey Vinik, the manager of Magellan at that time, did not last long after these numbers came out; he resigned in May to set up his own investment firm. He was replaced by Bob Stansky, a 13-year veteran at Fidelity who is less likely than Vinik to make big sector bets.