Fidelity Operating Income Rises 13% on Stocks Rally

Feb 12, 2014 1:54 pm ET

(Updates with fund deposits and withdrawals in sixth, seventh paragraphs.)

Feb. 12 (Bloomberg) -- Fidelity Investments, the second- largest U.S. mutual fund company, reported a 13 percent increase in operating income last year as the rally in equities boosted assets.

Earnings, excluding costs such as interest and taxes, climbed to $2.6 billion from $2.3 billion in 2012, the Boston- based company said today in its annual report to shareholders. Revenue rose 7.9 percent to $13.6 billion.

“Higher customer asset levels coupled with product, service, and productivity enhancements resulted in impressive performance for Fidelity,” Edward C. Johnson III, chairman and chief executive officer, said in the statement.

While the amount of money Fidelity manages increased, its asset-management unit lost ground to rivals including Vanguard Group Inc. as clients withdrew a net $1.1 billion from its managed products. Abigail Johnson, the chairman’s daughter and president of the firm founded by her grandfather, is expected to announce an internal replacement in the coming weeks for Ronald P. O’Hanley, head of that unit. She said in January O’Hanley will leave the company at the end of this month.

Assets under management rose 15 percent to a record $1.94 trillion, boosted by a 30 percent rally for the Standard & Poor’s 500 Index of U.S. stocks.

Equity Withdrawals

In funds and institutional products Fidelity manages, investors pulled $7.8 billion from equities, down from $32.4 billion in withdrawals in 2012. Clients took $19.6 billion from bond products, after depositing $16.3 billion in 2012. Investors fled bonds in 2013 anticipating higher interest rates as the U.S. Federal Reserve prepared to begin reducing monetary stimulus efforts.

Managed accounts, Fidelity’s packaged investment products that allocate money to multiple strategies for individuals with at least $50,000 to invest, gathered a net $17.7 billion, more than double the deposits from 2012.

Assets under administration, which includes money Fidelity oversees as a record keeper for retirement plans and for independent financial advisers and hedge funds, jumped 19 percent to $4.62 trillion. Clients added $126.9 billion to administered assets. Fidelity is the largest record keeper of 401(k) retirement assets in the U.S.

Over the past two decades, Fidelity has shifted its emphasis from its funds lineup to the record-keeping, retirement and brokerage businesses.

‘Unhappy’ Women

“We’re still best known for our expertise in investment management,” Abigail Johnson said in a question-and-answer section in the report. “But over the years, as we’ve grown to meet customer needs, we’ve become much more than a mutual-fund company.”

Johnson, who ranks 136th on the Bloomberg Billionaires Index with a net worth of $9.1 billion, said the firm will increase efforts to reach female investors. Fidelity research showed women are “unhappy with our industry,” she said.

“Women are becoming increasingly powerful in our economy - - controlling more wealth, often out-earning their spouses, and making more retirement decisions,” she said.

--With assistance from Charles Stein in Boston. Editors: Josh Friedman, Christian Baumgaertel