Opinion: Ned Johnson’s recipe for Fidelity’s success: Give investors a healthy dose of fund picks and star managers
Few of us change the world for the better. Edward “Ned” Johnson, III, who became president and CEO of Fidelity Investments in 1977 when the firm’s assets under management were $3.9 billion, is one of those rare people.
In fact, millions of households today are investing in mutual funds in their 401(k) plans, IRAs and other types of accounts thanks in large part to Johnson, who died March 23 at age 91.
At the time of his death, Johnson was chairman emeritus of a company that had $11 trillion in assets under administration representing approximately 40 million investors. Ned’s daughter, Abigail (Abby), became CEO of Fidelity in 2014. (Fidelity was and still is a family business)
And what a company. Johnson deserves credit for creating a nation of investors by skillfully marketing actively managed low-cost and no-cost mutual funds managed by star portfolio managers beginning in the late 1970s. a trio of giants (and geniuses) who, each in their own way, have democratized investing. Jack Bogle, the founder of The Vanguard Group, is credited with marketing low-cost passively managed index funds and Charles Schwab made buying and selling stocks at a discount an ordinary occurrence.
But it is Johnson who stands out, at least in the mind of Matt Fink, the former president of the Investment Company Institute, as the “most important figure” in mutual fund history. “Under his leadership, Fidelity introduced a long series of innovations,” Fink wrote in his book, “The Rise of Mutual Funds: An Insider’s View.”
He did indeed. In 1974, for example, Fidelity launched the first money market fund that allowed investors to withdraw funds simply by writing a check. By today’s standard, a money market fund with check-issuing privileges is, of course, a de minimis feature. But at the time, it was a “remarkable innovation” that was “immediately and widely copied”, as Diana Henriques wrote in her book, “Fidelity’s World”.
Johnson also gets credit for many other innovations, including, as Henriques and Fink noted in their respective books, a legacy of investments in such things, computing power, investor centers, innovative products ( tax-exempt money market funds and tax-exempt no-fee funds). ), customer service, as well as excellent marketing and public relations services. Fidelity spent a lot of money making it easy for customers to call a 24-hour toll-free number to speak to a customer service representative, and in doing so made it difficult for other companies in the financial services industry to compete. .
Of course, none of these innovations were surprising given two factors. First, under Johnson, Fidelity became known not just for collecting its unofficial mascot (frogs), but for something called “kaizen,” or continuous improvement. Fidelity was never going to rest on its laurels under Ned’s watch. Second, society was and still is private. Johnson could and did freely spend the company’s profits on all sorts of projects and endeavors.
But of all the innovations, Johnson – who managed the Magellan fund for a while – will be best remembered for making Fidelity the home of some of the greatest mutual fund managers of all time, including Peter Lynch, Bruce Johnstone, Dorsey Gardner, Leo Dworsky, Barry Greenfield, Joel Tillinghast, Will Danoff, Karen Firestone, Jeff Vinik and Moshe Smith, to name a few.
These managers and others often graced the covers of personal finance and business magazines for their chart-topping performances and became household names. These star managers were the faces of Fidelity and assets flowed in because of them. Given this, Johnson gave his portfolio managers and researchers carte blanche to run their operation as they saw fit. Lynch, for example, was famous for making big bets on companies that, in some cases, would become 10-baggers.
Johnson will also be remembered for his insight and marketing acumen. Fidelity, given the large number of funds it used to offer and still offers (about 200 at last count), has always seemed to have more than a few funds on the top performers lists. Given this, Fidelity was able to take advantage of the trend of investors chasing trendy mutual funds. Essentially, the money was guaranteed to go into any Fidelity fund on the list of top performing funds for that quarter or year. It was nothing short of awesome to offer so many funds.
It’s also worth noting that Johnson, despite being worth around $13.6 billion, had – at least for me – an easy way to know him. I remember walking through Boston one morning on my way to work and seeing a man emerge from the passenger side of a not-so-new station wagon, clutching a brown paper lunch bag in his hand. He walked around the head office of 82 Devonshire St. – Fidelity.
I had to do a double take.
It was Ned.
Robert Powell is a MarketWatch columnist.
Continued: Why 401(k) and other retirement savers can be grateful Fidelity’s Ned Johnson was such a visionary
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