That's not exactly fair. They hold many assets, so of course any action on any individual asset may not have a significant effect. However, if they behave similarly across all similar assets, it will have an effect on the overall fund.
I think the percent of holdings argument is going to apply to these funds at Fidelity even if you take all the startups they own together. I guess "tens of millions" becomes excessively dismissive though.
Sure but even still, suppose an analyst saves all of Fidelity's clients 1M in two days worth of work. We can't dismiss that as silly because that savings is so small compared to 5 trillion AUM, right?
I'd also like someone who understands the issue well to let us know whether these mark downs have any tax implications to begin with. I think it might sometimes be the case that marking down such a holding would allow recognition of a tax loss but I don't think that is going on here.
Stasis' logic is along the right lines - you need to think about it in terms of portfolio management strategy. Effectively, the manager is trying to switch as much of the gains of their fund from being taxed at 40% to being taxed at 15%. A decent explanation here: http://www.nicholasfunds.com/dividend_info.html
You're right that it won't be a large drop in the bucket. It's not news because it's a large drop in a bucket, it's news because its a valuation change on companies many here follow. Nonetheless, one could object to poor management if Fidelity didn't take this action, regardless of size.
Note - this only gets at the 'why now' part of the motivation. What it means for 1) their internal company valuations and 2) implications for shareholders without liquidation preferences is more interesting.
Can you explain the mechanism where it is a tax loss and show where Fidelity has used it? That sounds like a gotcha, but I'm genuinely curious if it is clearly the case that they can recognize a tax loss here.
I think the mark down mostly does two things. It allows Fidelity to honestly inform their customers what they hold, and it signals to the startups that things aren't necessarily going the way Fidelity would like to see them go.
If these securities have been held for <1 year, their gain/loss goes into the short term bucket. So losses (in this case, writedowns) can offset the size of distribution, which is a bad deal for investors.
To a personal investor (e.g. mentioned in the world of WealthFront/Betterment), this is 'tax loss harvesting'.
Yeah agreed. The linked article mentions distributing income but snapchat has no dividends so it seems irrelevant. I'm not clear how this has any effect on Fidelity's taxes for 2015. It seems like its just bringing the valuations closer to what Fidelity expects they are worth so there are no surprises later.
Here's one of the Fidelity funds invested in Snapchat:
https://fundresearch.fidelity.com/mutual-funds/composition/3...
It's got $40 billion under management.
There's a document findable from there that lists their Snapchat investment as $10 million (Prospectus and Reports->Monthly Holdings report).
The number 1 holding of that fund is $2,192,901,654 of Apple. So they get roughly $10 million each time Apple pays a quarterly dividend.