Fidelity Ramps Up Quant Investing With Takeover of Geode Funds

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Fidelity Investments is taking over several actively managed index funds run by its former Geode unit to bolster its quantitative offerings.

Geode Capital Management will transfer $15 billion in active equity and tax-managed equity portfolios to Fidelity by year-end, according to a July 26 regulatory filing. The biggest among them is the Fidelity Large Cap Value Enhanced Index Fund with $6.1 billion of assets.

Best known for its fundamental approach to picking stocks, Fidelity has also been building out its use of quantitative techniques, which it uses in part to improve fund performance and help manage risk. Last year, the Boston-based firm combined its quant managers and research analysts into one team amid rising demand for customized fund strategies.

“The whole premise is around delivering customizable and purely quantitative products out into the market because our clients are specifically asking for it,” said Neil Constable, who was hired by Fidelity last July to lead the new quantitative research and investments team. “We needed to do it at scale and the decision was made that we needed more quants.”

Fidelity will gain 20 Geode employees, including three day-to-day portfolio managers. If the changes were completed today, the quant unit would have 130 employees and about $135 billion of assets under supervision, including $90 billion tied to proprietary indexes, Constable said.

Fidelity founded Geode, also based in Boston, in 2001 to move into quantitative investing, only to spin it off two years later. Geode has historically run passive index funds for the fund giant and continues to subadvise all of its existing ones including the $343 billion Fidelity 500 Index Fund. In total, Geode manages $793 billion.

Geode officials didn’t return a telephone call seeking comment. Ignites, a mutual fund news site owned by the Financial Times, reported the planned transfer earlier this week.

Fidelity’s quant group develops funds and provides research to active managers. In recent years, it has focused on creating hybrid portfolios that rely on fundamental and quantitative methods. A recent example is the Fidelity Stocks for Inflation exchange-traded fund which invests in companies that may benefit from rising prices. It began trading in 2019 under the ticker FCPI, a reference to the consumer price index.

“Given all our history of what drives returns in stocks, we collected what kind of companies thrive in inflationary or deflationary periods,” Constable, 47, said.

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