Apr. 30–In a rare public appearance, Abigail Johnson, chief of mutual funds at Fidelity Investments, took aim last night at hedge funds and new regulations aimed at her industry, while urginginvestors to stay in the market for the long term.
Johnson, the daughter of Fidelity chairman Edward C. “Ned” Johnson III and the 19th wealthiest American, said investors would be making a mistake to abandon mutual funds now despite what she called “the dramatic bursting of the stock market bubble.”
She argued that the average investor who holds funds in a retirement plan at work would have lost more in stocks during the bear market than in funds. One in five US stocks lost 60 percent of their value last year, she said, while only a relatively small number of mutual funds fell that sharply.
Johnson said mutual funds are likely to remain the main vehicle American workers use to build nest eggs, despite the rise in popularity of unregulated hedge funds and separate accounts for the wealthy.
“I believe mutual funds can compete very successfully with hedge funds and separate accounts,” Johnson said before a conference of the Society of American Business Editors and Writers in Cambridge.
Mutual funds, she said, offer “much stronger protections and regulatory oversight” and chart lower fees.
Johnson, 41, became president of Fidelity’s fund investment group in June 2001, succeeding longtime executive Robert Pozen, who is now a member of the Romney administration.
Johnson has taken on increasing responsibilities at the firm since she was hired in 1988, after earning her MBA, starting out as a stock analyst, and working her way up to fund manager and overseeing the firm’s technology systems. She managed the firm’s high-profile growth investing group before becoming president.
Johnson is a closely watched figure in the investment industry, as the executive being groomed to take over one day for her father, who is 72 and said to be in top health. Executives who know him say he has no intention of stepping down any time soon.
Fidelity is the nation’s No. 2 fund manager, with $456 billion in assets. The largest firm is Vanguard Group, with $471 billion, much of that in index funds rather than in actively managed portfolios, as at Fidelity.
Johnson said both the fund industry and the business press should do a better job of educating investors. “Being your pension plan administrator is a tough job” for the average person, she said.
The biggest risk most investors face today, she said, is becoming too cautious after a period of falling markets. She suggested she is optimistic about stocks, and the corporate earnings that drive them.
Johnson repeatedly made the case for long-term investing. “Remember,” she said, “you have a good chance of living longer than you ever imagined.”
These are trying times at Fidelity and across the investment industry, as the stock market flaps aimlessly after three years of a bear market. The company’s profits dropped 39 percent in 2002, to $808.2 million, while revenues fell 9 percent, to $8.9 billion. Assets under management shrank 12 percent, to $774 billion, erasing the gains from the bubble years that had pressed assets to nearly $1 trillion at the peak.
Like other financial institutions, Fidelity has also been hurt by the loss of investor confidence following last year’s financial scandals. Nevertheless, Johnson criticized efforts to force greater disclosure by the mutual fund industry, assailing new rules requiring fund firms to disclose their proxy votes.
In responding to a question, Johnson said Fidelity executives were just as surprised as ordinary investors over last year’s corporate scandals. “There was a lot of egregious behavior that needed to be reined in.”
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