Paul Merriman: Why Do These Two Nearly Identical Fidelity Funds Have Such Different Performance?

Ted

FYI: One of the best tools for working people who are saving for retirement is the target-date fund.

Most 401(k) and similar plans offer this option, which provides a modest amount of diversification among equity asset classes as well as a built-in mechanism for gradually reducing the risk of the portfolio as retirement gets closer.

But not all target-date retirement funds are the same, and I recently discovered an interesting comparison among Fidelity’s offerings.

As I was reviewing the list of investment options in a reader’s 401(k) plan, I realized that Fidelity offers two different versions of its target-date funds.

One version is what I think is the wrong choice for most investors. But this one brings more profits to Fidelity Investments. Not surprisingly, it’s the version that’s offered in most Fidelity-run retirement plans.

The other version is the right choice for investors. But it’s less profitable for Fidelity, sort of an “under-the-counter” product that’s rarely offered to retirement plan participants.
Regards,
Ted
https://www.marketwatch.com/story/target-date-wars-fidelity-vs-fidelity-2019-08-07/print

M* Snapshot FNSDX:
https://www.morningstar.com/funds/xnas/fnsdx/quote

M* Snapshot FDEWX:
https://www.morningstar.com/funds/xnas/fdewx/quote

msf

Just another article about how index funds must be better than actively managed funds. He does not appear to have a real interest in looking at Fidelity's date funds:

"As I was reviewing the list of investment options in a reader’s 401(k) plan, I realized that Fidelity offers two different versions of its target-date funds."

Must have been an intensive review, because he missed three other series of Fidelity target date funds: Managed Payout, Simplicity RMD, and its newest series, Freedom Blend funds (more on that below).
Fidelity 2020 Target date funds (five series)

"Here are two mutual funds managed by the same company, with identical goals. The only apparent difference is active vs. passive management."

Apparently, a 1-2% difference in allocations between the two sets of funds wasn't apparent to him. Here are M*'s reports on the two Freedom series he discusses. The first row of numbers under the glide path figure in each report are the equity percentages held by the series for each target year.

M* Freedom Target-Date Fund Series Report (12/31/2018)
M* Freedom Index Target-Date Fund series Report (12/31/2018)

From the Index series report:

Despite the notable cost advantage, each Freedom Index fund lagged its Freedom series counterpart since the Freedom Index series' late-2009 launch through December 2018; the funds underperformed by 15-73 basis points annualized. The absence of active management and certain subasset classes, like high-yield bonds, from Freedom Index contributed to these re-
sults.

Whoops. At least Merriman's column is labeled "Opinion".

Regarding the Freedom Blend Funds (from Barron's, no subscription needed for the article):

Actively managed funds will comprise a bigger slice of the pie in areas where the markets are less efficient and active managers can add more value, says Andrew Dierdorf, co-manager of the Freedom Funds. That will primarily be in small-caps, high-yield bonds, floating-rate loans, and emerging markets. The funds’ underlying exposure to large-cap equities and government fixed income will be more index-oriented, he says.

https://www.barrons.com/articles/fidelitys-latest-gambit-for-your-retirement-savings-1536247498

catch22

Thank you @msf

From Mr. Merriman's web site:

"There’s a lot of money to be made from financial newsletters that give investment advice. But the money comes from selling the newsletters, not from taking the advice.

Literally anybody can start and publish an investment newsletter. The key to success is to have a period of successful predictions that can be promoted as if it’s a sign that the publisher has talent, insight and an accurate handle on future performance.

You can claim almost anything

Despite their slick appearance, many investment newsletters are run from home. It’s easy to start a newsletter. You don’t need a college degree. You don’t need a license. You don’t need a track record. You can claim almost anything you want to as long as you aren’t actually being paid to manage money."

>>> Some of his above would suggest some amount of due diligence, a self code of discovery.

NOTE: I'm surely not in an intellectual position to discredit his years of work and sharing of information; but disappointed with this current write. His newsletter is free, although one may suspect some form of monetizing his work. I'm not inclined to give my time to such an investigation.

Mr. Merriman's web site

Perhaps too much coffee, for me, this A.M.

Take care,
Catch