Many believe that the demand for individual mutual funds is driven by the performance of the product. Others believe that believe that? funds are sold and not bought?. Credo has found that many factors other than performance affect the demand for individual funds. This monthly report offers some proof that demand for specific funds is driven by factors beyond performance; factors such as branding, marketing and sales efforts. It is also driven by the reputation of the actual money managers.

The innovative framework and modeling that Credo uses to control for a fund’s performance in an analysis of the demand (i.e., gross sales) shows how out-of-kilter some funds can actually be with respect to a demand equation that is defined only by performance-justification.

Credo’s analysis of Fidelity’s portfolio of 123 Canadian mutual funds reveals – after accounting for the financial performance of the company’s products – that Fidelity Investments Canada garnered gross sales during the period of May through July that were 7.56% above the level that is justified by the returns the company’s products delivered over the last 12 months ending July 2010.

Fidelity’s reported gross sales, May through July 2010, were $1748.04mn. Credo’s Financial Performance Control Model (FPCM) estimates that, for the level of performance the company’s products delivered in the 12 months that preceded July 2010, Fidelity should have garnered only $1625.23mn in gross sales. A review of The Credo FP Map (Chart #1). on the following page shows that many of Fidelity’s funds produced better performance than other funds within their respective asset categories; this is because they reside above the horizon within our FP Map’s framework. There are also a number that fall short of being leaders within their respective asset categories. Funds that fall below the x-axis have below average performance within their respective asset categories. Overall, the returns delivered by Fidelity’s funds was clearly above average.

Credo’s FCPM indicates that non-performance factors (such as branding, sales, marketing and distribution initiatives) effectively supported Fidelity. Investments Canada’s interest in garnering the level of gross sales that can be justified by the asset-weighted average return of 7.6% that the company’s products delivered in the 12 months ending June 2010.

Over the last 12 months ending June 2010, 25 funds together delivered returns of 7.15% (in combined, asset-weighted terms), on average about -6.1% lower than the asset weighted returns of their respective asset categories. Together these 25 funds managed just under $31954.13mn in assets (about 71.68% of the mutual fund assets managed by Fidelity in Canada) and they garnered approximately $1241.57mn in gross sales from May through July of 2010. For the level of performance that they delivered, however, Credo’s model suggests that they should have garnered $1145.91mn a difference of $95.66mn.

Key Findings In this Bulletin:

  • Fidelity’s Gross Sales for Quarter: $1748mn
  • Fidelity’s Performance-predicted Gross Sales: $1625mn
  • Fidelity’s funds were OVERSOLD for performance by: $123mn

Fidelity Funds Analysis : Sept 2010

  • Gross Sales Period Covered: May through July 2010
  • Returns Period Considered: 12 month returns at July 2010

CREDO CONSULTING INC.

FPCM Model Report on Fidelity Funds

FairShare of Sales for Performance Quantifying the Power/Value of Branding, Marketing and Sales Efforts.

Many believe that the demand for individual mutual funds is driven by the performance of the product. Others believe that believe that “funds are sold and not bought”. Credo has found that many factors other than performance affect the demand for individual funds. This monthly report offers some proof that demand for specific funds is driven by factors beyond performance; factors such as branding, marketing and sales efforts. It is also driven by the reputation of the actual money managers. The innovative framework and modeling that Credo uses to “control” for a fund’s performance in an analysis of the demand (i.e., gross sales) shows how out‐of‐kilter some funds can actually be with respect to a demand equation that is defined only by performance‐justification.

Credo’s analysis of Fidelity’s portfolio of 123 Canadian mutual funds reveals ‐ after accounting for the financial performance of the company’s products ‐ that Fidelity Investments Canada garnered gross sales during the period of May through July that were 7.56% above the level that is justified by the returns the company’s products delivered over the last 12 months ending July 2010. Fidelity’s reported gross sales, May through July 2010, were $1748.04mn. Credo’s Financial Performance Control Model (FPCM) estimates that, for the level of performance the company’s products delivered in the 12 months that preceded July 2010, Fidelity should have garnered only $1625.23mn in gross sales. A review of The Credo FP Map (Chart #1). on the following page shows that many of Fidelity’s funds produced better performance than other funds within their respective asset categories; this is because they reside above the horizon within our FP Map’s framework. There are also a number that fall short of being leaders within their respective asset categories. Funds that fall below the x‐axis have below average performance within their respective asset categories. Overall, the returns delivered by Fidelity’s funds was clearly above average. Credo’s FCPM indicates that non‐performance factors (such as branding, sales, marketing and distribution initiatives) effectively supported Fidelity. Investments Canada’s interest in garnering the level of gross sales that can be justified by the asset‐weighted average return of 7.6% that the company’s products delivered in the 12 months ending June 2010 Over the last 12 months ending June 2010, 25 funds together delivered returns of 7.15% (in combined, asset‐weighted terms), on average about ‐6.1% lower than the asset weighted returns of their respective asset categories. Together these 25 funds managed just under $31954.13mn in assets (about 71.68% of the mutual fund assets managed by Fidelity in Canada) and they garnered approximately $1241.57mn in gross sales from May through July of 2010. For the level of performance that they delivered, however, Credo’s model suggests that they should have garnered $1145.91mn a difference of $95.66mn.

Chart #1 ‐ FairShare for Performance Map for Fidelity: This map is a graphical representation of Credo’s econometric Financial Performance Control Mode (FPCM). The premise of the model is this: funds that deliver above average performance should gain market share and that those that deliver below average performance should lose market share and if this tenet is correct, funds should align themselves along the diagonal of a Credo FP Map. To the extent that a fund’s position deviates from this diagonal, the fund is being either over– or under‐sold for the performance it delivers. Funds that fall to the right of the diagonal are being oversold relative to the performance they deliver. Funds to the left of the diagonal are being relatively undersold for the performance they are delivering. The degree to which products are under– or over‐sold is quantified in the legend (Table #1) and in more detailed reporting that is available from Credo. The value and effectiveness of the sales, marketing, branding and reputational management efforts made by companies is measured and quantified with this model. The model is used as an input to calculate the ROI from sales initiatives and marketing management.

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