A New Twist for Fidelity Asset Manager Funds

Fidelity's Asset Manager products, which invest in a varying combination of stocks, bonds and cash, have assumed some of the trappings of funds of funds. Since the launch of Fidelity Asset Manager, the first of Fidelity's asset-allocation funds, in late 1988, the funds have invested directly in stocks, bonds and short-term debt. Recently, though, they've been granted the ability to invest in specially packaged sector funds. These "central funds," as Fidelity calls them, are similar to its Select sector funds, but they are only available for in-house use.

Fidelity created the portfolios to allow Asset Manager funds to quickly increase their exposure to specific sectors without overburdening their managers. Instead, managers can tap the stock-picking expertise of sector specialists, who also run corresponding Select funds. "We're hoping to provide the funds with additional value to shareholders, but free up the manager to focus more energy on the rest of the fund," says Fidelity spokesman Michael Shamrell.

Each of Fidelity's four Asset Manager funds offers a different combination of asset classes that varies in terms of objective and risk tolerance. Richard Habermann, who has managed money at Fidelity for 36 years, sets each fund's allocation of stocks, bonds and cash. Those portions are then handed off to at least one other Fidelity manager. Typically, one manager controls the fund's stock sleeve, while another oversees its bond division.

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Asset Manager (symbol FASMX; 800-544-8544) is a middle-of-the-road fund. It generally holds 50% of assets in stocks, 40% in bonds and 10% in cash. Asset Manager Aggressive (FAMRX) bumps its benchmark stock holdings to 85% of assets, while Asset Manager Income (FASIX) typically holds only 20% in stocks (as well as 50% in bonds and 30% in cash). Fidelity Asset Manager Growth (FASGX) holds 70% in stocks, 25% in bonds and 5% in cash. Lead manager Habermann can adjust each fund's weightings within pre-designated bands, based on market conditions.

Over the past three years, Asset Manager Aggressive returned 12% annualized, while each of the others gained an annualized 7%. Asset Manager, the oldest fund in the series, has returned an annualized 10% since its inception.

Fidelity will assume most of the expenses associated with running the central funds, Shamrell says. Some fees will be passed indirectly to the Asset Manager funds, he says, but those will be costs the funds would have otherwise incurred by investing directly in the stocks.

The central funds became available to the Asset Manager products in late July. The portfolios track the following stock sectors: consumer discretionary, consumer staples, energy, financial services, health care, industrial companies, information technology, materials, telecommunications services and utilities. Holdings of the central funds will soon be posted on Fidelity's Web site and will be listed separately in the financial statements of the Asset Manager funds.