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Fidelity reports record revenue and profits, even as its stock funds struggled

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Fidelity Investments reported record revenue of $15.9 billion in 2016, as well as record operating profits, despite a year in which its flagship stock funds struggled to keep up with rivals’ performance, and an industrywide exodus by investors to index funds continued.

In its annual report released Thursday, the Boston-based financial services company said cost cuts along with 3.4 percent growth in revenue helped drive a 19.5 percent gain in its operating profits, to $3.5 billion.

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Abigail P. Johnson, in her first letter as both chief executive and chairman of Fidelity, cited “headwinds from industrywide pricing pressures,” and acknowledged the challenges the firm and other active managers faced as investors moved money to funds that own the stocks in indexes like the Standard & Poor’s 500 that don’t require human expertise.

The company took in $9.3 billion more than was withdrawn from its funds, a relatively slim margin that Johnson said was helped by Fidelity’s own index funds and exchange-traded funds, as well as bond strategies. Total assets under management rose 4.7 percent to $2.13 trillion, Fidelity said.

Assets under administration — which include servicing retirement fund money not invested by Fidelity managers — climbed 10.6 percent to $5.7 trillion.

But the firm’s stock funds performance lagged in 2016, Johnson said, beating only 36 percent of their peers. Over five years, they outperformed 68 percent of peers. The firm’s actively managed mutual funds saw $57.7 billion in outflows in 2016, according to the report.

Those losses were offset by new money coming into Fidelity’s managed-account products, for higher-net-worth clients; money markets, and index funds.

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Fidelity’s 401(k) retirement business continued to grow, particularly among small plans, and the company said it remains the largest manager of IRA accounts.

Fidelity said it serviced 27.5 million workplace plan participants and 8.9 million retail households last year, up 6 percent and 6.8, respectively.

Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.



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