Newsletter Assails Fidelity Group for Change in Policy

Newsletter editor Douglas Fabian said Thursday that he and his subscribers are the victims of “blatant discrimination” by the Fidelity Group, the nation’s largest mutual-fund company.

Fabian, who produces the Telephone Switch Newsletter, made the allegation in a letter sent to his 45,000 subscribers. The letter protested a decision by Fidelity earlier this month to no longer allow individuals to trade in and out of mutual funds--a practice called market timing--at a time when a major newsletter was recommending such moves.

Boston-based Fidelity told shareholders Oct. 18 that it was taking the step because the mutual-fund company was adversely affected by hundreds of millions of dollars being shunted back and forth between its funds.

“Marketing timing contradicts one of the most widely recognized principles of successful stock market investing--taking a long-term perspective,” Fidelity President J. Gary Burkhead told shareholders in a letter. “When a large percentage of fund shares is moved suddenly, it can . . . ultimately have a negative impact on fund performance.”

Fabian claims that his subscribers control nearly $1 billion in Fidelity shares and have every right to engage in market timing--moving, for instance, from stock funds to money market funds to precious metals funds to try to keep one step ahead of changing markets.

“No shareholder owes you the dissipation of his investment for the sake of your convenience,” Fabian said in letter to Burkhead.

Fidelity, however, claims that all of its shareholders are hurt by market timing because fund managers sometimes must sell or buy large amounts of stock at inopportune times in order to meet a sudden demand created by a timing newsletter’s recommendation.

The company said it is restricting switching now because of an increase in requests due to volatile financial markets. The partial ban does not apply to Fidelity funds that invest in international entities or are tailored to specific industries such as transportation.

Fabian said he has made five buy or sell recommendations this year, which is within a ceiling Fidelity had set in the past. “This came out of nowhere,” he said.

However, Fabian and Fidelity have clashed before. In March, Fidelity closed three of its smaller stock funds to new investors after a rush was created by Fabian recommending them.

Fabian is not worried that myriad mutual funds may follow Fidelity’s lead, thereby making his newsletter and the recommendations in it virtually useless.