An article in The Wall Street Journal describes the struggle of the $2.4B Fidelity® New Millennium fund to hold on to assets under management:

From the start of 2008 through the end of last year, the fund saw net outflows totaling $518 million, according to Morningstar. This year, through late June, the fund has taken in $9 million.

These asset losses are attributed to high correlations of stock returns:

In the long shadow of the financial crisis, global economic woes led many stocks to trade in lock step, making it hard for stock-fund managers to find stocks that would differentiate their returns from the swings in the broader market.

However, there may be light at the end of the tunnel:

Now Mr. Roth is hoping that both investors and the markets more broadly are in the final stages of working through the “trauma” of 2008. It’s encouraging that there is “less concern about systemic risk” in the U.S. economy and more focus on where we are in the economic cycle, says the manager. As long as correlations between stocks decline—meaning stocks move less in unison with the broader market—the current slow-growth environment for the U.S. economy can present a host of opportunities for stock pickers.

The problem is that the bull market has been going on for almost four and a half years now. The following chart show the cumulative RealAlpha™ for the fund in that and the prior period:

Cumulative RealAlpha™ for FMILX

Despite this year’s breakthrough, from early 2005 through 2012 the cumulative RealAlpha™ for the fund oscillated in a roughly +/- 5% range. As a result, the overall statistics for the fund are rather unimpressive:

FMILX Statistics

Although it is true that the S&P 500® component correlation hit a six-year low at the turn of the last year, this correlation was also low in prior periods during which the performance of the fund was not stellar:

S&P 500® Correlation

So, while a low correlation supports active management efforts, it does not guarantee that the fund will outperform. In the end

Mr. Roth acknowledges, however, that investors need to see results. “The proof is in the numbers,” he says.

Alpholio™ could not agree more. That said, there is an issue of selecting a proper benchmark for the fund, i.e. one that would dynamically match its actual holdings instead of automatically default to a large-cap market proxy:

During his tenure, the fund has beaten the [S&P 500®] index 98% of the time on a rolling three-year basis, according to Morningstar Inc.

Since the beginning of 2013, the fund exhibited substantial equivalent positions in iShares Russell 2000 Growth ETF (IWO; average weight of about 26%) and iShares Morningstar Mid-Cap Growth ETF (JKH; 23%). This indicates the fund’s recent tilt towards small- and mid-cap growth stocks to boost its performance.

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