When Fidelity Acts, the Stock Market Responds

By RUSS WILES

June 25, 1995 12 AM PT

They call it the Behemoth of Beantown, and for good reason.

Fidelity Investments is the largest company in the mutual fund industry, and it tackles all aspects of the business--trading, portfolio management, shareholder servicing and more--on a grand scale.

A visit to the company’s Boston headquarters puts it all into perspective. “Headquarters” can only be applied loosely in Fidelity’s case, as the firm’s 7,300 employees in Boston are spread through 16 buildings, not to mention 7,600 others working in Cincinnati, Dallas, Salt Lake City, New York and elsewhere.

Nowhere is Fidelity’s size more apparent than in its equity trading room, where the company buys and sells roughly $1.5 billion of stock each day, in lots averaging 19,000 shares per trade. The company accounts for about 9% of the daily volume on the New York Stock Exchange and about 7% on Nasdaq.

Fidelity claims the 82-foot electronic ticker that borders the ceiling of its trading center is North America’s largest. But because traders these days work almost exclusively with phones and computer monitors, the electronic display board is primarily ornamental--a luxury befitting a firm with $300 billion in assets.

Mutual fund performance is affected by the prices at which stocks and bonds are sold. Because Fidelity deals in such large blocks of shares, its traders get the best prices. But these traders also must be careful not to push up or down a stock’s price in their haste to get an order filled.

“For Fidelity, an ideal trade is to buy or sell a lot of stock without moving the market,” says James Altoonian, a senior equity trader.

Until a decade ago, Fidelity traders often competed against one another on the same stock. Now a computer flags any stocks that different Fidelity traders are trying to buy and sell at the same time. Interfund transactions--commission-free swaps of shares among Fidelity portfolios--account for 6% of the company’s volume.

“We have our own mini stock market right here,” says Altoonian.

Traders are at the beck and call of Fidelity’s fund managers. The company is renowned for its stock-picking prowess--Morningstar Inc. of Chicago ranked it No. 1 of 15 major groups for equity fund performance in a recent study.

On average, 17 firms visit Boston each day to meet with Fidelity analysts and fund managers. Their CEOs, financial officers and investor-relations reps gather in a small waiting room like so many ambassadors paying tribute to the khan.

The Fidelity fund manager or analyst who interviews a company’s reps is responsible for drafting notes for the benefit of other Fidelity stock pickers. The information is disseminated via computer so that Fidelity analysts in Hong Kong, Tokyo or London have access to it as quickly as someone down the hall in Boston.

“We try to keep these meeting notes to between 15 and 30 lines,” says Harry Lange, who runs three Fidelity high-tech funds. “Above 30 lines, people don’t like to read them.”

It’s easy to see why: Lange estimates Fidelity researchers draft an average of five notes a year on each of the 6,000 companies the firm follows, or 15,000 new research notes annually.

For companies like Fidelity that sell directly to shareholders, telephones represent the main window to the outside world.

In an office overlooking Boston Harbor, 200 Fidelity phone reps handle customer inquiries and transaction requests. The company has 2,000 phone reps in other cities.

To ensure that the firm isn’t swamped by calls, a computer forecasts telephone volume on an hourly basis. A busy day in the stock market or a newspaper story on Fidelity can trigger an avalanche of inquiries.

When the pace quickens, the company responds by canceling lunches and days off, and by pulling workers from other departments--no simple task since only those employees licensed to sell securities can field calls.

Fidelity’s phone reps across the nation answer about 85,000 calls each day, says John Davis, who oversees the Boston phone center. That’s in addition to 190,000 calls served by touch-tone automation.

“Our goal is to handle 85% of our customer calls within 20 seconds, about three rings,” he says.

Fidelity tied for 13th place of 52 mutual fund, insurance, brokerage and banking firms evaluated for customer satisfaction in a 1995 study by Dalbar Inc. of Boston. It was fourth of 56 fund groups in a 1995 satisfaction study by Financial World magazine.

Despite Fidelity’s size and many strengths, it has been unable to dominate the fund business. Its stable of international and global portfolios, for example, are unexceptional.

“For years, Fidelity has struggled to apply the rapid-turnover approach that has served it so well at home to its international funds, only to suffer mixed results,” observes Morningstar spokesman John Rekenthaler.

Morningstar gives superior four- and five-star ratings to 79% of Fidelity’s domestic stock funds, but not a single Fidelity foreign portfolio has earned this distinction.

Also problematic has been Fidelity’s recent performance in the global bond area. Several Fidelity income funds got zapped by large positions in Latin American debt last December, when Mexico devalued its peso.

Overall, however, Fidelity’s bond department does a respectable job. Some 53% of the company’s income funds enjoy four- or five-star ratings--a deceivingly high number considering that Morningstar grades on a bell-curve scale.

Success in both the stock and bond markets, along with the broadest product lineup, explain why Fidelity is No. 1 in the fund business with 13% of the market, nearly double that of the Vanguard Group, its closest rival. All in all, the Behemoth remains the team to beat on the mutual fund playing field.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Fidelity Facts

A profile of Fidelity Investments of Boston, the nation’s largest mutual fund company.

* Market share: 13% of industry assets

* Trading: Accounts for 9% of NYSE volume, 7% on Nasdaq

* Value of daily trading: $1.5 billion

* Customer accounts: 15% of fund industry

* Daily phone calls received: 275,000

* Mutual funds: 222 (about 4% of total)

* Largest fund: Magellan (13% of Fidelity assets)

* Employees: 14,900 (7,300 in Boston)

* Investor centers: 80 (11 in California)