Fidelity's deceptive advertising, part I
I'm looking at a Fidelity advertisement in the latest issue of Kiplinger's (the second page spread in the November 2005 issue). It's amazing how deceptive it is. "Add staying power to your portfolio," and "Experience, value, and a focus on long-term performance set our funds apart" reads the ad. To back up these come-ons, the text notes that Fidelity offers "more 4- and 5-star funds than anyone else."
But wait. There's a footnote. Reading the fine print, the advertisement notes as of 7/31/05, 76 out of 146 funds were rated four or five stars by Morningstar. Turn that statistic around, and we find that 70 Fidelity funds, or nearly half, are only rated 1, 2, or 3 stars. That doesn't sound too promising!
There's more to this advertisement that I find disturbing. At the center of the page is a little chart which shows the great 1, 5, and 10 performance of three funds (Fidelity's Contrafund, Export and Multinational Fund, and Balanced Fund), which look super when compared with the S&P 500 Index benchmark. I don't dispute the performance of these funds, but again, this advertisement is highlighting the winners, and not the losers. Why isn't Magellan up there? Because it would totally contradict Fidelity's claim to focus on long-term performance, as its performance does not beat the S&P 500 index.
I also have to ask if the S&P is an appropriate benchmark for Contrafund and Fidelity Export and Multinational Fund, which have investments in foreign equities and companies not in the S&P 500.
One last criticism: The chart compares the funds and the benchmark as of 6/30/05, whereas the "more 4- and 5-star funds" claim is based on data as of 7/31/05, one month later. Why the disparity, and why aren't they using more recent data, such as the measures from 8/31/05? It's because the data from the end of June is a better comparison for the three Fidelity funds vs the S&P, the end of July is a better date for Fidelity for the Morningstar rankings, and I am assuming the August data is worse for both points of comparison.
Hype and the use of selective or misleading statistics have taught me to view Fidelity advertisements with extreme caution. Never make an investing decision on the basis of an advertisement like this -- you should always take a few hours to do some serious research before investing in a Fidelity fund. Examine fees, take a look at the prospectus, and learn about the management team and its history before taking the plunge.
Everyone is going after rich customers. No secret there. I see and hear advertisements for "preferred client services", "wealth managent", etc. offered by white-glove firms and brand-name financial services corporations alike. Rich customers are good customers to have. Read
Big shake-up brewing at Fidelity's Magellan fund. Bloomberg's Chet Currier reports the current Magellan manager, Bob Stansky, is leaving, to be replaced by Harry Lange, the manager of Capital Appreciation and Fidelity Advisor Small Cap. Read
Our family has about a half-dozen accounts with Fidelity. Roth IRA, Rollover IRA, a stock-buying account, a few 529 plan accounts, etc. Read
One feature of Fidelity.com that I have found particularly useful is the "cost" view of my accounts. Basically, this allows you to see how much a stock or fund has appreciated -- or declined -- since you bought it, in both dollar terms and percent ... Read
One Acronym: ETF (exchange traded fund)
The big pluses:
1. Low Fees vs. mutual funds
2. Can be traded in and out of
3. Can write options on
