9
Morningstar FundInvestor
December
2013
first manager post. Even with those departures,
T. Rowe’s
7
.
4
-year average manager tenure signifi-
cantly trumps Fidelity’s
4
.
9
years.
Shoring Up Overseas Efforts
International equities aren’t the strong suit of either
firm. They comprised
12%
of Fidelity’s firmwide
assets as of October and
13%
of T. Rowe’s (excluding
money market and fund of funds assets). Both firms
have built up their global operations as relationships
with affiliates ended. Fidelity officially cut ties with
Fidelity Worldwide (formerly
FIL
) in
2013
as part of a
long-planned transition. It ramped up hiring over-
seas since
2007
in anticipation of the organizational
split. A mix of experienced hires and fresh
MBA
graduates, the group takes a more global view than
do Fidelity Worldwide’s country- and region-focused
analysts. The transition has been going on for a long
time, so we don’t expect a jarring change at Fidel-
ity’s foreign funds. The true test will be in long-term
performance: The firm’s international-equity funds
have been middling over the trailing five- and
10
-year
periods through October, and seven of the eight
actively managed funds that Morningstar analysts
cover are rated Neutral.
T. Rowe is further along with its international-equity
efforts. Its build-out dates back to
2000
, when
T. Rowe assumed full control of its joint venture with
U.K.-based Robert Flemings Holdings, the opera-
tion behind its international funds since
1979
. In the
split, T. Rowe kept the portfolio managers and Flem-
ing kept the analysts, so T. Rowe had to start from
scratch on the analyst team. T. Rowe has spent the
past
13
years gradually building out its global team,
and there are now more analysts overseas than in
the United States. Six of the eight actively managed
international-equity funds that Morningstar covers
are medalists (two are rated Neutral), though the
group’s performance relative to peers still pales in
comparison with the firm’s dominant domestic-
equity funds.
Expanding Resources
Both firms have beefed up resources in areas where
they’re looking to improve or expand. A pioneer of
target-date funds in the
1990
s, Fidelity Freedom
Funds long had a stronghold on that market’s assets,
thanks to the firm’s dominance in the
401
(k) record-
keeping business. However, Fidelity lost significant
market share in recent years as the funds’ perform-
ance languished and innovative competitors sprang
up. Fidelity shored up its global asset-allocation
group, which grew to
67
people in
2013
from
36
in
2011
. In
2013
, the firm revamped its glide path,
with equity levels closer to its biggest competitors,
including T. Rowe Price.
T. Rowe, meanwhile, has upped its head count on
the fixed-income side, where its analyst staff grew to
74
in
2013
from
33
in
2007
. The greatest increase
came on the quantitative side as the firm built out its
risk and attribution technology platform starting in
2008
. Today the team is
24
members strong, versus
five in
2007
. High yield saw a net addition of nine
analysts during the past five years as that asset class
took in a bunch of money. (
T. Rowe Price High-Yield
PRHYX
is closed to new investors.) Five emerging-
markets corporate analysts were hired in the past few
years, with a focus on acquiring analysts with foreign-
language skills. These hires were critical for the
launch of two emerging-markets corporate-bond funds
in
2011
and
2012
, which the firm views as an in-
creasingly important asset class. Four new sovereign
analysts came on board in recent years, too, as sover-
eign credit risk in the developed world became more
of an issue. A few others were sprinkled across
other areas of fixed income.
Picks and Caution
While both firms have made strides, T. Rowe as a
whole tends to be more stable, whereas Fidelity is
working to improve on some of its weak spots. There
are strong fund options across both shops, among
them
T. Rowe Price Dividend Growth
PRDGX
,
T. Rowe Price International Stock
PRITX
,
Fidelity
Large Cap Stock
FLCSX
, and
Fidelity Interna-
tional Discovery
FIGRX
. Neither firm has any Nega-
tive-rated funds, though there are some Neutrals,
which typically have relatively new managers, slug-
gish long-term performance, or bland strategies.
œ
Contact Katie Reichart at
