Yesterday's Boston Globe featured an interesting piece on impending layoffs at Fidelity. It seems the privately-held company responded to its funds' lackluster performance by expanding its team of analysts--to roughly 500--at just the wrong time, as assets under management fell and investors moved out of high-margin stock funds into less-expensive money market vehicles.
But there's a bigger point here: Adding dozens of analysts to "beef up its stock-picking capabilities" doesn't make much sense when most analysts represent a deadweight loss to the company and, more importantly, to owners of the company's mutual funds and institutional accounts.
Here's a key passage from Ross Kerber's report on the situation at FMR Co., Fidelity's asset management unit:
Can't say we're surprised. Most of the fund industry's swarms of fundamental analysts don't--and can't--"add value to the process." Not because they aren't smart, well-trained, and conscientious. Most of them are all of those things, not to mention well-paid. Instead, the problem is that they have effectively impossible jobs. Fidelity's current difficulty is just the latest chapter in this ongoing story.
Ross Kerber, "Fidelity layoffs slated to start," Boston Globe, February 3, 2009