Fidelity's active funds: how good are they really?
- Robin Powell
- 1 hour ago
- 9 min read
Data spanning three decades reveals a stark gap between Fidelity's active management reputation and long-term results. The most surprising evidence? The company's own strategic pivot away from the very funds that built its name.
I still remember the moment. Late 1990s, sitting across from my financial adviser as he slid a glossy Fidelity brochure across the desk. Take a look at this American fund management company, he said. There's this guy called Anthony Bolton who's crushing it. And there's another called Peter Lynch. "You can't go far wrong investing with Fidelity," he said.
I didn't question it. Why would I? I was hopelessly naïve, and I became a Fidelity investor and stayed one for years.
Over time, a nagging question grew louder: why did I always seem to underperform the market? I couldn't work it out. Surely these professionals with their research teams and expertise should deliver better results than just tracking an index?
"Over time, a nagging question grew louder: why did I always seem to underperform the market?"
I understand why now. The answer reveals one of the largest gaps between reputation and reality in fund management. The evidence comes not from critics, but from comprehensive data analysis and, most tellingly, from Fidelity's own strategic choices about where to deploy resources.
This isn't just my story. It's a universal challenge facing intelligent investors worldwide who've been told skill reliably beats markets — and who keep paying for that promise despite mounting evidence to the contrary.
The reputation: How Fidelity's active funds became legendary
Peter Lynch averaged 29% returns annually from 1977 to 1990 managing the Fidelity Magellan Fund — more than doubling the S&P 500's growth. He grew an $18 million fund into a $14 billion giant, creating arguably the best-performing mutual fund in history over that stretch.
Lynch's impact transcended numbers. One Up On Wall Street became investment gospel, teaching ordinary investors to spot opportunities in everyday life. Cultural influence extended Fidelity's reach far beyond raw performance.
Today's standard bearer is Will Danoff, managing the Contrafund for nearly 35 years. At $145 billion, it's the largest actively managed mutual fund in America. Fidelity markets managers like Danoff as proof that skill persists, that human judgment matters, that research depth wins.
Adam Benjamin's Fidelity Select Semiconductors Portfolio returned 49% in 2024 and 80% in 2023, crushing the S&P 500 Information Technology Index's 37% gain. Concentrated bets on Nvidia (27% of assets) and Broadcom (14%) paid off spectacularly during the AI boom.
Anthony Bolton built Fidelity's UK reputation. From 1979 to 2007, he managed Special Situations and became Britain's most celebrated stock picker. Even his 2010 comeback — launching Fidelity China Special Situations despite a 34% loss in 2011 — showed Fidelity's faith in star power.
The scale
Fidelity Investments oversees $16.4 trillion in customer assets and directly manages $6.4 trillion. The firm employs over 170 research analysts globally and generates $32.7 billion in annual revenues — 50% more than BlackRock.
A recent profile of the company in the Financial Times details how this scale, combined with Fidelity's dominance in workplace retirement plans, has made it one of the most powerful yet lowest-profile players in global finance.
The pitch remains consistent: beat the benchmark, leverage research depth, outmanoeuvre passive strategies through superior skill.
The reputation is genuine, earned through real historical successes. But does it withstand rigorous scrutiny?
The 30-year verdict: What comprehensive data reveals
My colleagues at Index Fund Advisors published an exhaustive analysis in May 2024 examining 136 Fidelity actively managed mutual funds, domiciled in the US, with at least 30 years of performance data.
The headline finding? Zero funds demonstrated statistically significant skill at beating benchmarks.
"The headline finding? Zero funds demonstrated statistically significant skill at beating benchmarks."
The methodology
IFA corrected for survivorship bias by including 35 merged or closed funds — precisely the "shell game" fund companies play to hide poor performance. They used Morningstar benchmarks and applied rigorous statistical testing requiring a t-statistic of 2.0 or greater.
30 years eliminates most luck-based explanations. Genuinely skilled managers should show consistent patterns. Random fluctuations average out. Style differences become clear.
The top-line results
Out of 136 funds:
60.29% (82 funds) underperformed benchmarks
39.71% (54 funds) produced positive alpha
That second figure sounds promising until you grasp what statistical significance means.
Understanding statistical significance
Positive alpha means a fund beat its benchmark on average. But averages mislead when performance is erratic. A fund might crush its benchmark in a few years and lag badly in others, producing a positive average that looks like skill but actually represents volatile, inconsistent results indistinguishable from luck.
The t-statistic measures whether outperformance is consistent enough, relative to volatility, to provide confidence it will persist. A t-stat of 2.0 represents 97.5% confidence that observed results reflect genuine skill rather than chance.
Not one Fidelity fund with at least 30 years of data cleared that threshold.
The sector fund concentration problem
18 US equity funds showed positive alpha. 14 were sector-specific: biotechnology, semiconductors, telecommunications.
Concentrated sector bets occasionally pay off spectacularly. They also carry substantially higher risk. The alpha charts reveal the pattern.
Fidelity Select Biotechnology (FBIOX) produced positive average alpha over 29 years. Remove just 1999's extraordinary 87% spike, and the narrative transforms. Strip out 2013 and 2020 as well, and the supposed skill evaporates. The t-statistic of 0.39 confirms this: investors would need 781 years to establish confidence that observed alpha represents genuine skill rather than lucky years.
The pattern is clear: short bursts of high alpha during narrow windows, followed by reversion. Looks like skill in retrospect. Feels like skill when experiencing winning years. Statistically indistinguishable from luck.
The pattern is universal
IFA's broader "Deeper Look" series examined the returns delivered by numerous fund management companies, including Goldman Sachs, Morgan Stanley, T. Rowe Price, and Franklin Templeton. Results are remarkably consistent: the vast majority produce statistically insignificant alpha.
William Sharpe's arithmetic demonstrates mathematically that after costs, active managers as a group must underperform passive strategies. Eugene Fama and Kenneth French's research confirms persistent underperformance across thousands of funds over decades.
SPIVA's global findings show this pattern holds worldwide.
Control for known risk factors using the Fama-French three-factor model — market risk, small-cap exposure, value tilt — and apparent alpha from sector concentration and style bets disappears. What remains is noise.
If even Fidelity — Peter Lynch's legacy, 170+ analysts, $6.4 trillion in scale — cannot reliably generate statistically significant alpha, the problem isn't solvable with more resources.
Fee impact
Fidelity's active funds average 0.43% in expense ratios versus 0.03% for comparable index funds. Add turnover costs and tax drag, and the all-in difference often exceeds 0.60-0.70% annually.
Over 30 years, that seemingly modest gap destroys substantial wealth through relentless compounding. On a £100,000 portfolio, that difference destroys between £150,000 and £200,000 of wealth.
The 2024-2025 reality check: Current performance data
The latest independent data confirms the pattern.
US market: SPIVA 2024
S&P's SPIVA US Scorecard found 65% of large-cap managers underperformed the S&P 500 — worse than 2023's 60% rate. Over 15 years: not a single category showed majority outperformance.
The small-cap exception — 70% outperformed in 2024 — illustrates a critical point: when large and small caps diverge by 16 percentage points, funds with small-cap exposure beat large-cap benchmarks. This reflects asset allocation differences, not stock-picking skill.
UK/International: Bestinvest "Spot the Dog"
Bestinvest's February 2025 "Spot the Dog" report flags UK-domiciled Fidelity funds underperforming benchmarks by at least five percentage points over three consecutive years. Seven Fidelity funds made the list.
The three largest:
Global Special Situations: £3.3 billion, roughly 12% behind
Asia Fund: £2.7 billion, roughly 12-13% behind
Emerging Markets: £1.59 billion, roughly 12% behind
Combined: over £7.6 billion in persistent laggards.
Fidelity attributed underperformance to "style headwinds" and underweighting mega-cap technology. Translation: active bets to deviate from benchmarks produced worse results than simply tracking would have delivered.
The geographic divide
Fidelity Investments (US) attracted $698 billion in net inflows during 2024. Fidelity International announced 10% workforce cuts. Success appears tied more to market conditions and distribution power than investment skill.
The most revealing evidence: What Fidelity's own actions tell us
Actions reveal beliefs more reliably than marketing. Fidelity's strategic choices over the past seven years tell a remarkable story.
The index fund revolution
In 2018, Fidelity launched the first zero-fee index funds. No expense ratio. No hidden costs. Pure index tracking at no charge — a bold, pro-investor move.
Impact was dramatic. By September 2024, the Fidelity 500 Index Fund held $723 billion — not just Fidelity's largest index fund, but one of its largest funds period. Bigger than Will Danoff's $145 billion Contrafund, the flagship of Fidelity's active legacy.
Geode partnership expansion
Less visible but equally significant: Fidelity's partnership with Geode Capital Management expanded from $200 billion a decade ago to $1.88 trillion. Geode specialises in systematic, rules-based strategies — closer to sophisticated indexing than traditional active management.
The active ETF migration
Fidelity became a top-ten provider of active ETFs, converting several traditional mutual funds to ETF structures. In May 2026, the US Low Volatility Equity Fund completes its conversion. Stated benefits? "Lower expenses, better performance, tax efficiency."
Translation: even when keeping the "active" label, Fidelity adopts structural advantages pioneered by passive investing — lower costs, greater tax efficiency, daily transparency.
What this means
The most damning evidence against active management's value proposition doesn't come from academic critics or passive investing advocates. It comes from Fidelity's own allocation decisions.
If Fidelity doesn't bet heavily on Fidelity's active funds, why should you?
Why even the best can't win: The structural reality
Active management persists despite consistent underperformance because it's economically rational for firms, even when irrational for investors.
Market efficiency has intensified
Competition for alpha has never been fiercer. Every professional investor accesses the same information simultaneously. Trading advantages measure in milliseconds. When managing $6.4 trillion globally, you aren't discovering hidden opportunities — you are the market for many securities.
Research depth no longer creates the edge it once did. Information diffuses too quickly. Capital concentrations are too large. The game has changed since Peter Lynch could find overlooked small caps in the 1980s.
Distribution advantage matters more than performance
Fidelity's real edge isn't investment skill. It's distribution power.
The firm manages 401(k) plans for 26,500 employers, including half the Forbes 500. Workplace retirement plans funnel billions that rarely leave even when performance lags. Employees default into plan options. Inertia keeps assets in place. Workers who leave jobs? Fidelity captures rollovers into retail products.
Add 200+ investor centres, relationships with thousands of advisers, and a brand built over 70 years. You have a distribution machine sustaining asset flows largely independent of investment results. The model doesn't require alpha — just appearing credible enough to retain assets through institutional momentum.
Survivorship bias and recency bias
Marketing creates momentum. Fidelity shows survivors, not the 35 closed funds. They highlight current stars like Adam Benjamin, not funds lagging benchmarks. Peter Lynch's extraordinary 1977-1990 run generates credibility extending 35 years past his retirement.
Investors assume recent outperformance persists. Two or three strong years create belief in permanent skill. By the time reversion appears, new winners emerge to continue the narrative.
The business model works brilliantly — just not for investors paying for outperformance they're unlikely to receive.
What this means for investors
The solution isn't finding rare skilled managers. Evidence suggests they either don't exist or can't be identified beforehand. The solution is accepting market returns efficiently.
Three principles suffice:
Core passive exposure: Build portfolios around broad market index funds covering global equities and bonds. Low cost. Tax efficient. Thousands of securities.
Fee minimisation: Analyse all-in costs. Every 0.10% matters when compounded over decades.
Behavioural discipline: Stay the course. Ignore performance theatre. Rebalance systematically. Don't chase recent winners.
When active might make sense
Genuine inefficiencies may exist in certain niches: small-cap international equities, frontier markets, private equity, specific alternatives. But accessing genuine edge requires institutional access, high minimums, patience with illiquidity, and robust evaluation criteria — resources most retail investors lack.
Evidence-based approaches accept what markets give efficiently rather than paying premium fees for the illusion of beating them.
Conclusion: The lesson Fidelity itself has learned
"When even Peter Lynch's company stops betting heavily on Peter Lynch's strategy, it's time to listen."
I think about that younger version of myself sitting across from my adviser, accepting the Fidelity brochure without question. The marketing was compelling. Anthony Bolton's reputation seemed unassailable. Why would I doubt it?
What I didn't see — what comprehensive data now reveals — is that even 30 years isn't long enough for skilled managers to consistently demonstrate statistically significant outperformance. Star performers were statistical outliers, not evidence of repeatable skill. The firm's own pivot toward passive products validates what the data shows.
The irony is rich. Fidelity built its reputation on Peter Lynch's ability to beat markets. Today, Fidelity's fastest-growing product is a zero-fee index fund that doesn't even try. The company's best advice for investors increasingly ignores what made Fidelity famous.
This isn't about demonising Fidelity or active managers. It's about evidence. 30 years of data from one of the world's premier asset managers shows what academic research and industry-wide tracking consistently reveal: persistent, statistically significant outperformance remains elusive.
The empowering realisation? You don't need to find the needle in the haystack. You don't need to identify rare managers with genuine skill. You don't need to sort through conflicting performance claims or worry whether recent winners persist.
You simply need to capture market returns efficiently and let compounding do the work.
When even Peter Lynch's company stops betting heavily on Peter Lynch's strategy, it's time to listen.
Recently on TEBI
Finding a financial adviser shouldn't feel like a leap of faith
The professionals in our Find an adviser directory have publicly committed to evidence-based principles — no stock-picking, no market-timing, no hidden agendas. See who's near you and start a conversation.
For advisers: Need help with client content? Email Robin or connect on LinkedIn to discuss our content marketing services.
