Boston-based fidelity Investments, an interna-tional money-management behemoth with more than US$1.3 trillion in assets under management around the world, has been having its share of challenges in Canada, where it is just emerging from four consecutive years of net redemptions.

Finally, things are looking up for Toronto-based Fidelity Investments Canada Ltd. : net sales of long-term funds for the 10 months ended Oct. 31 came in at $300 million, a definitive turnaround from the sorry redemptions of $1.2 billion in the comparable period last year.

Robert Strickland, a 20-year financial services veteran who was appointed president of Fidelity in February 2005, has been fighting the war against redemptions as his top priority since he took the post.

“The key objective has been to reverse the trajectory of sales,” says Strickland. “We’ve been facing the issue of net redemptions in Canada since 2002. It’s really inconsistent with whom we are at Fidelity and the capabilities we have.”

With $37.5 billion in Canadian retail fund AUM under its wing, Fidelity is the sixth-largest fund manager in Canada, as ranked by the Investment Funds Institute of Canada. Its AUM are up 16% from a year ago, but that’s not enough for Strickland.

“When a company gets to the size of Fidelity in Canada, the vagaries of financial markets do a lot more to drive assets than net sales,” he says. “We want to grow beyond the market effect by growing the business and increasing our share of the pie.”

To get the ship back on course, Fidelity launched initiatives on several fronts over the past few years, including cutting fund management fees while increasing trailers to advisors, introducing new funds and holding more road shows.

While the broker channel has traditionally been Fidelity’s strength, it has made an effort in the past several years to woo financial planners, and Strickland says sales to the two channels are now about equal.

A “third evolution,” he says, has been the development by the banks of their own financial planning arms, relying on a mix of proprietary products as well as third-party funds. There’s been a great opportunity for Fidelity’s wholesalers to forge relationships with growing bank wealth-management divisions such as TD Waterhouse Canada Inc. and CIBC Wealth Management Inc. as they’ve emerged from under the wing of the traditional deposit-taking business.

“Wholesaling in itself can add a lot of value for planners who are in the early stage of the learning curve,” Strickland says. “It can take years for new advisors to learn about all the products in the marketplace, and they can’t do it by sitting in a classroom and listening to someone who hasn’t drunk the Kool-Aid. The Fidelity product line adds value for the banks and complements their product strengths, giving investors a more robust universe from which to choose.”

With 250 investment analysts in its office network worldwide, Fidelity’s biggest strength is international equities and, to a lesser extent, international fixed-income. Over the past several years, international equity funds have seen their returns dented by a soaring Canadian dollar. Canadian markets, meanwhile, have been on a tear, propelled by financials, resources and, until recently, income trusts. Fidelity has tended to be light on resources stocks in its portfolios.

“In the past few years, the mutual fund market has played into the strengths of the big banks, which have been strong in Canadian equity and balanced funds,” says Dan Hallett, president of Windsor, Ont.-based fund analyst Dan Hallett & Associates Inc. “At one point, it was a cakewalk for independent fund companies to take fund assets from the banks. But not any longer. Fidelity was late in the game in launching funds such as dividend and income trust funds.”

In May 2005, Fidelity finally launched Fidelity Dividend Fund, Fidelity Income Trust Fund and Fidelity Monthly High Income Fund. “We looked at the dividend category for a long time but weren’t satisfied it had enough depth and breadth,” Strickland says. “That evolved in the past 10 years and, as of last May, we were comfortable launching a dividend fund.”

The popularity of income trusts has been a relatively recent phenomenon, so Fidelity waited to in-troduce an income trust fund until it had a built a team of analysts to study the category.

@page_break@ The income trust fund has performed particularly well relative to its peers in the wake of the income trust sector’s negative reaction to the Canadian government’s announcement that trusts would lose their favourable tax treatment in four years. For the year to mid-November, Fidelity Income Trust Fund was in positive territory with a 3.7% gain, while the S&P/TSX capped income trust index fell by 12.5%, resulting in a 16.2% difference in return. The Fidelity fund was underweighted in oil and gas trusts, which fell particularly hard, and overweighted in REITs, many of which escaped the tax measures, and in cash.

Fidelity has also been successful winning some assets with its ClearPath Retirement Portfolios, a series of life-cycle funds launched in November 2005 that garnered assets of $465 million in their first year. The funds have a choice of maturity dates ranging from five to 40 years, with the portfolios gradually increasing their tilt toward conservative fixed-income assets as they move toward their maturity date, usually chosen by the investor to coincide with retirement. Fidelity is a leading seller of a similar product in the U.S., introduced 10 years ago, and has developed in-depth booklets on retirement planning.

“ClearPath is an evolved form of asset allocation,” Strickland says. “It adds an extra layer of customization on top of asset allocation. Fidelity is assuming a leadership position with life-cycle funds in Canada.”

Earlier this year, Fidelity introduced another handful of funds specializing in what are expected to be popular niches, including Fidelity AsiaStar, Fidelity China, Fidelity Global Real Estate, Fidelity International Disciplined Equity and Fidelity International Value. Most warmly received have been Fidelity AsiaStar, which has grown to AUM of $81 million, and Fidelity Global Real Estate, which has grown to $47 million.

“We have expanded the product line and there’s more to come next year,” Strickland says. “Fidelity has fabulous capabilities in asset allocation and income creation in the U.S. that we can introduce in Canada. There’s no shortage of good ideas, and we have been buoyed by the success of the funds we have launched in the past 18 months.”

But he doesn’t want to lose impact by introducing too many funds. “We don’t want to crowd the market with too many good ideas or they won’t get the traction they’re worthy of,” he says.

Having an attractive product lineup is just part of the strategy. Getting the story out is equally important, and Fidelity has been emphasizing communication by expanding the number of cities in which it holds road shows and the frequency of its visits. The 2006 spring advisor road show hit 25 cities across Canada, and Fidelity completed a whirlwind November tour of 15 cities. Strickland says Fidelity is holding twice as many advisor meetings as it did three years ago, and the number of advisors it is taking to head office in Boston for fund manager powwows has also doubled.

Last year, the firm spent heavily on advertising in North America, including hiring former Beatle Paul McCartney to promote its retirement products, and is increasing the “ad buy” this season.

Strickland says Fidelity also had success with an initiative two years ago to reduce management fees on funds with front-end loads, as well as on those that have come to the end of the deferred sales charge schedule. The initiative resulted in a drop in MERs of about 20 basis points on equity, balanced and asset-allocation funds, giving DSC investors an incentive to hang onto their funds, which are automatically converted to lower-fee front-end funds after seven years. On fixed-income funds and money market funds, MER savings are about 30 basis points. When funds come off the DSC schedule, they are vulnerable to redemption, and Fidelity’s lower-fee offering is designed to hang on to those assets.

“We see evidence of a positive impact of the fee change,” Strickland says. “The investor gets a lower MER, the advisor gets more compensation and Fidelity hangs on to more assets. It’s the mythical win, win, win.”

One of Fidelity’s latest offerings is a hedged version of its American High Yield Currency Fund to make it “currency-neutral” for Canadian investors. This means clients can seek the high levels of income offered by high-yield bonds in the U.S. without worrying about exchange rates. With Canadian income trusts no longer as attractive as they were, this fund is another potential strategy for building an income-producing portfolio.

“Fidelity is launching products that are attracting new money,” Hallett says, “as well as keeping more money behind its doors than it otherwise might have left.” IE