(September 27) – “Investors who have struggled in this year’s choppy stock market have some high-profile company: Fidelity Investments,” writes John Hechinger in today’s Wall Street Journal.

“After a vaunted turnaround in the late 1990s, Fidelity’s stock picking has slipped in the new millennium — and so have sales to investors.”

“Through Monday, 51% of Fidelity’s stock and bond funds were beating their peers — that is, funds that invest in the same sectors and with similar styles — says fund-tracker Morningstar. That’s down from 60% in 1999 and 67% in 1998.”

“Fidelity isn’t the only large fund company whose performance has cooled, but investors’ reaction has been especially noticeable at the nation’s No. 1 mutual-fund company in terms of assets under management. Fidelity currently ranks No. 10 in net sales this year, according to Financial Research Corp., a mutual-fund consulting firm. It’s a showing so weak that Fidelity is now rethinking its advertising strategy.”

“Through July 31, Fidelity pulled in $4 billion in net sales — or customer purchases minus redemptions — down from $17.7 billion in the same period the year before, Financial Research says. Fidelity’s share of the entire industry’s flows slipped to 3%, down from 14% last year. As recently as 1995, Fidelity was the cash-flow king, garnering almost a quarter of the industry’s net sales.”

” ‘Fidelity is failing to keep pace with other fund families, and market share is under siege,’ says David O’Leary, president of Alpha Equity Research, a North Hampton, N.H., Fidelity tracker.”

“Robert Pozen, president of Fidelity Investments’ fund-management arm, acknowledges that Fidelity’s performance slipped this year relative to other fund firms. With more than 200 stock and bond funds, Fidelity’s sales can suffer over short periods compared with firms whose offerings concentrate entirely on the market’s hottest sector, Mr. Pozen says. Those funds tend to rake in the cash when they’re hot and lose it when performance cools.”

“Mr. Pozen also notes that Fidelity’s best-performing funds — Growth Company, Fidelity Aggressive Growth and Fidelity OTC — are as hot as any in the industry, generating billions of dollars in sales. As of the end of August, the firm’s latest tally shows 92 of 151 Fidelity stock funds available to U.S. investors were beating the performance of Standard & Poor’s 500-stock index on a one-year basis. ‘Those are damn good numbers,’ Mr. Pozen says. ‘If you can beat the S&P, over the long term, you’ll beat your peers.’ “