Plus, Vanguard heads overseas, new ETF launches, and more.
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By Katie Rushkewicz Reichart, CFA | 02-05-09 | 01:15 PM | Email Article

Fidelity's rash of layoffs continues. The firm started trimming administrative jobs in late 2008, announcing that it would reduce its workforce by 3,000 employees, or roughly 7%, in 2009. The latest cuts include employees at its operations centers in New Hampshire and Kentucky. The cutbacks aren't just affecting non-investment personnel, though. After a dismal 2008 in which many of its funds tanked--70% of its diversified domestic-equity funds lagged their category averages--and redemptions skyrocketed, Fidelity has also started firing portfolio managers whose funds underperformed. Here is a roundup of some of the most recent changes.

Katie Rushkewicz Reichart, CFA, is a senior fund analyst on the active funds research team for Morningstar.

Richard Manuel is out at  Fidelity Select Financial Services  and  Fidelity Select Home Finance , which he ran since 2007 and 2006, respectively. A heap of battered stocks like  AIG ,  Fannie Mae ,  Freddie Mac , and Lehman Brothers pounded the funds in 2008; the Financial fund was down nearly 50%, and Home Finance lost 58%. Ben Hesse, who was named comanager of the Financial fund in late 2008, will assume full responsibility there and will also oversee the financials research team. Hesse is a surprising choice given his limited experience. He joined Fidelity as an analyst in 2005 and started running  Fidelity Select Brokerage & Investment  in 2007, where he made some good calls, like dumping Bear Stearns while Manuel was adding to it in the Financials fund. Nonetheless, the choice is concerning. Fidelity's financial research hasn't been its strong suit lately, and putting it in the hands of a relative newcomer in such a challenging market environment seems like a mistake. Meanwhile, Christopher Lee will take over Home Finance. He briefly ran  Fidelity Select Electronics  before joining the financials team as an analyst.

Veteran manager Stephen Petersen has replaced Robert Chow at  Fidelity Equity-Income II . Chow's short tenure at the large-value fund was mixed, with the fund landing in the top and bottom quartiles during the last two calendar years. Petersen brings a fairly effective value style to the fund, which he has used with moderate success at  Fidelity Equity-Income  since 1993.

 Fidelity Aggressive Growth  manager Steve Calhoun has added more to his plate, taking over the struggling  Fidelity Mid Cap Growth . He replaces Patrick Venanzi, who barely got a chance to settle in after starting in January 2008. Venanzi's transition came at a difficult time considering the market downturn, and the fund landed at the bottom of the mid-growth category. It appears Fidelity wasn't willing to wait and see if he could turn things around, preferring to move him to the small-cap analyst team and go with a slightly more experienced manager. Calhoun has shown potential at Aggressive Growth since coming on board in mid-2005, following a unique strategy that melds bottom-up stock-picking and long-term themes.

Steven Wymer has been named manager of  Fidelity Advisor Growth Opportunities . He replaces John Porter, whose bold, growth-oriented approach produced erratic returns over his three-year reign, including a loss of more than 55% in 2008. Wymer has produced an impressive record at  Fidelity Growth Company , which he has managed since 1997. The closed fund's 10-year record beats 90% of its peers'.

Penny Dopkin is retiring after a middling tenure at  Fidelity Advisor Diversified International . A familiar face replaces her. Bill Bower ran this fund and its retail counterpart,  Fidelity Diversified International , for a three-year stretch earlier this decade. When the retail version closed in 2004, he moved exclusively to that offering, and Dopkin took over the advisor fund, running it with a different style. Though Bower is a capable manager with a great track record, it's disappointing that Fidelity is adding to his load. His retail fund has nearly $26 billion in assets, and though Dopkin's fund has shrunk quite a bit after 16 straight months of outflows--it's now at $8.5 billion--that's still a lot of money to be running with the same strategy.

That's not the only foreign fund that's bringing back a familiar face. Adam Kutas has returned to  Fidelity Latin America , which he briefly comanaged from 2005 to 2007 with outgoing manager Brent Bottamini. Kutas currently runs Fidelity Emerging EMEA , a fledgling emerging-markets fund that inopportunely launched in May 2008. Bottamini will stay on as an emerging-markets equity analyst.

There have also been some bond fund changes. Fixed-income head Dwight Churchill announced that he is retiring. The news is disappointing as he seemed capable of improving Fidelity's taxable-bond lineup. A replacement has not yet been named. Meanwhile, Curt Hollingsworth will lead the effort to enhance Fidelity's efforts in fixed-income indexing. He has joined Ford O'Neill at the struggling  Fidelity U.S. Bond Index , which has lagged the Barclays Capital Aggregate Bond Index for two years running. Hollingsworth has also replaced Bill Irving at several bond index funds, including Fidelity Spartan Short-Term Treasury Bond Index , Fidelity Spartan Intermediate Treasury Bond Index , and Fidelity Spartan Long-Term Treasury Bond Index . Finally, Jamie Pagliocco has been promoted to comanager of several municipal bond funds, including  Fidelity Municipal Income  and  Fidelity Tax-Free Bond , among others.

Vanguard Expands Overseas
Vanguard Group announced plans to launch several funds in the UK. The fund shop, long known in the U.S. for popularizing index funds and keeping a lid on fees, will offer a variety of index and actively managed funds. The firm's low-cost approach will likely be a shock in the European market, which is notorious for high fees. Though Vanguard currently offers funds domiciled in Dublin, this is the firm's first dalliance in the UK.

The Latest ETFs
The $159 billion State Street Global Advisors launched two new fixed-income ETFs on Jan. 27. SPDR Barclays Capital Short Term International Treasury Bond ETF tracks the Barclays Capital 1-3 Year Global Treasury ex-US Capped Index, which includes 229 issues from 21 foreign countries. SPDR Barclays Capital Mortgage Backed Bond ETF follows the Barclays Capital U.S. MBS Index, which consists of 1,727 U.S. agency mortgage pass-through securities. State Street's announcement comes on the heels of iShares' launch of two fixed-income ETFs: iShares S&P/Citigroup International Treasury Bond  and iShares S&P/Citigroup 1-3 Year International Treasury Bond .

Changing of the Guard
Bob Fetch of  Lord Abbett Small Cap Value  has been promoted to director of domestic equity portfolio management, effective Feb. 17. In his new role, Fetch will oversee all of Lord Abbett's domestic-equity funds and portfolio managers. He will continue to manage Small Cap Value, along with Gerry Heffernan, an analyst who was recently promoted to comanager. Fetch will also take over as lead manager of  Lord Abbett Mid-Cap Value  following Howard Hansen's departure, though comanager Jeff Diamond will remain on board.

Fetch has assembled a great long-term record on the closed Small Cap Value fund since his arrival in 1997, with the fund's 9% annualized 10-year return beating all but two of its small-blend peers. Though he is clearly talented, we can't help but worry that he is being stretched too thin. In addition to his new responsibilities, Fetch will continue to be listed as a comanager of several other funds, including  Lord Abbett All Value , Lord Abbett Alpha Strategy , and  Lord Abbett Balanced Strategy , among others. Many of these funds are team-managed, but Fetch is the lead manager of one of the bigger funds--the $2 billion All Value fund.

Lazard also announced a few manager changes. Gary Buesser is no longer comanager of Lazard U.S. Strategic Equity  and  Lazard U.S. Mid Cap Equity . Ronald Temple, a codirector of research who specializes in financials, has been added as a comanager of U.S. Strategic Equity and Lazard U.S. Equity Value . The impact should be minimal because the other managers on these funds remain.

Seligman Shareholders Slapped with Fee
RiverSource will charge Seligman shareholders a one-time fee of roughly 0.16% as it integrates Seligman's funds into its lineup. Though RiverSource maintains that Seligman's shareholders will ultimately benefit from lower expense ratios once the acquisition is complete, the charge seems severe given the steep losses that shareholders faced in 2008.

Merged
The $52 million Schwab Retirement Income  will merge into the $10 million Schwab Monthly Income-Enhanced Payout .

 

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Katie Rushkewicz Reichart, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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