Why Is Fidelity Liquidating Some Funds?

Fidelity is one of the biggest mutual fund firms. It seems to roll out a new fund regularly. It’s a behemoth. Yet, it’s closing three funds. Not closing them to investors, but shutting them down. There are lessons for investors in this news, and they are well-expressed here. Too often, a fad is created in investors’ minds, and financial services firms feel compelled to feed it. If investors want a fund that focuses on the narrowest of sectors, fund companies will find a way to offer one.

If the idea proves to be more than a fad, everything’s fine. But all too often it really is a fad. The fund doesn’t attract a lot of money, or the money it did attract leaves. The values of the investments it holds declines. Then the fund company has to decide what to do. The honorable thing, having done a dishonorable thing by feeding the appetite for a fad, is to close the fund and have investors move their money elsewhere.

A few of our themes at Retirement Watch are don’t follow fads; don’t chase headlines; and be sure an investment fits into your strategy and portfolio before buying it. Follow those principles and you won’t wind up like the investors in these Fidelity funds.

It’s important to recognize the lessons here because while Fido was shuttering these funds, it rolled out five new ones for its Series group. While new issues like Fidelity Series Intrinsic Opportunities and Fidelity Series Opportunistic Insights — run by star managers Joel Tillinghast and Will Danoff respectively — would appear to be an expansion of what the firm does best, investors might be better off simply going for established funds in the same spaces that built the company’s reputation.

The same could be said for BlackRock Global Long/Short Equity, Janus Diversified Alternatives — both recent new registrations — and countless other new funds that seem shiny and exciting as they first come to market, but which have the potential to be tomorrow’s quiet closing.