Analysts sour on Radlo departure

(December 2006) Fidelity Investments has been forced to shuffle its lineup of managers, after the sudden departure of Alan Radlo. So far its succession plans have met little enthusiasm.

Radlo managed more than $9.6 billion in assets, just under a quarter of Fidelity Canada’s total assets of $38.8 billion, including the Fidelity Canadian Growth Company Fund, Fidelity NorthStar Fund and the equity portion of the Fidelity Canadian Asset Allocation Fund.

“I just want to assure everyone that we have been preparing for such an event for years,” says Bob Haber, CIO of Fidelity. “We have created a deep resource called ‘Team Canada’ — we have the largest research department in the mutual fund business in Canada.

“We’re not making dramatic changes, because we do have people who have worked with Alan who have a lot of talent.”

Fidelity has already announced its plan to fill the gaps left by Radlo. Haber has taken over Radlo’s post as lead portfolio manager on the Canadian equity sub-portfolio of Fidelity Canadian Asset Allocation Fund.

He says the only changes in the fund will be an increase in concentration and a bias toward higher market capitalization stocks.

“As we chose managers for each of these funds, we wanted to make sure we kept the general objectives and philosophies the same,” Haber says. “We wanted to make sure we matched capabilities and strengths with the portfolio they were taking over, and we wanted to make sure we brought to the marketplace records that were at least as good, if not better, in this succession.”

On the Fidelity NorthStar Fund, Radlo has been succeeded by Cecilia Mo, along with Joel Tillinghast, who will be managing the U.S. equity portion of the fund, and Chris Goudie.

Maxime Lemieux steps into the role of portfolio manager on Fidelity Canadian Growth Company Fund, while Hugo Lavallée will join Lemieux as a co-portfolio manager on Fidelity Canadian Opportunities Fund.

Reaction to Radlo’s departure has been tepid at best, and more often, negative.

Peter Shippen, CFA, investment fund analyst at TD Waterhouse, says Radlo’s departure will have a minimal effect on the Canadian Asset Allocation Fund. The other two funds, however, he sees as a different story.

“The departure of Alan Radlo, who owned 130 names in the NorthStar fund and was credited with the fund’s concept, is a significant blow,” Shippen wrote in a note to clients. He suggests the departure “provides an impetus for re-evaluating this fund in client portfolios.”

Calling Tillinghast the only “star” remaining on the fund’s management team, he questions the readiness of Mo and Goudie to provide proper support in their roles.

“While Cecilia Mo has delivered solid returns in the Fidelity Income Trust Fund, we are unfamiliar with her having experience on this type of mandate or any broad-based equity portfolios,” Shippen writes. “While she is touted by Fidelity as an ’emerging star,’ only with time managing this mandate can this be proven.”

Shippen suggests considering GGOF Global Absolute Return Fund, managed by Matt Haynes of Lazard Asset Management, as a replacement fund for NorthStar, should investors seek an exit.

Entrusting nearly $6 billion to Max Lemieux also makes Shippen nervous, and he suggests investors review their holdings in the Fidelity Canadian Growth Company Fund, with an eye toward trimming their exposure.

Even less enthusiastic about Radlo’s departure is fund analyst Dan Hallett, president of Dan Hallett & Associates Inc. Hallett has immediately dropped all three funds from his company’s Recommended List, although he points out that investors holding them in taxable accounts — with large accrued gains — should fare well enough with the new managers.

“Most of these changes make sense given the available personnel, the existing level of assets already overseen by each and the holes left by Radlo,” he writes. “As for potential replacements, it may be worth waiting up to six months to see if Radlo re-emerges elsewhere. It may take at least that long since typical non-compete clauses for portfolio managers last about four months.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(12/22/06)

Steven Lamb