Editor's note: This is the first in a series of articles examining the 20 largest no-load stock funds.
No mutual fund has garnered more attention for its sheer size than Fidelity Magellan. Under Peter Lynch's management from 1977 to 1990, the fund achieved a staggering 29% annualized return. On average, Lynch trumped the returns of Standard & Poor's 500-index by 13 percentage points a year. As Magellan’s returns advanced, so did its assets. During Lynch's reign, the fund grew from $20 million to $13 billion.
A lot has changed since Magellan's golden age. Lynch’s immediate successors, Morris Smith and Jeff Vinik, continued to outpace the stock market. But under Vinik’s replacement, Robert Stansky, Magellan morphed into a swollen closet index fund -- that is, a fund that was hard to distinguish from the S&P 500. Magellan, which has been closed to new money since 1997, returned 7% annualized over the past decade, lagging 62% of funds that invest in a blend of companies with both growth and value attributes. That's about one percentage point a year less than the return of the S&P over that period.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Magellan’s asset base swelled to $100 billion in 1999. But today it stands at just $45 billion -- the result of losses incurred during the 2000-02 bear market and a steady stream of shareholder redemptions (including both load and no-load funds, Magellan is now the 10th largest stock fund).
Today, Magellan is an entirely different animal. It is run by Harry Lange, who took over in October 2005 after building a stellar record over nine years at Fidelity Capital Appreciation, a go-anywhere fund with a tilt toward growth stocks.
Lange immediately repositioned Magellan as a growth fund. Soon after taking over, he ditched many of Stansky's stodgy blue chips -- such as Altria (MO) and Pfizer (PFE) -- and replaced them with racier fare, such as Google (GOOG) and UnitedHealth Group (UNH). "Almost all the bets I make are in riskier companies," Lange says. Indeed, over the past year Magellan was about 60% more volatile than the S&P 500.
Lange likes to bet on leaders in growing industries such as technology, biotechnology, health care and specialty retail. As of September 30, the last date for which holding data is available, Corning (GLW) and Nokia (NOK) represented Magellan's biggest positions. And as he did at Capital Appreciation, Lange has committed some of Magellan's assets to high-growth companies abroad. Japan's recovering economy, in particular, caught Lange's eye. The fund recently had about 20% of assets in foreign companies, including 7% in Japanese names.
Lange shot out of the starting gate strongly during his first six months at Magellan but was blindsided during the stock market's May-June pullback in May (and continued to lose ground in July). Looking to beef up the quality of their holdings, many investors began abandoning the riskier stocks, particularly in tech and energy, that Lange had added to Magellan. Says Lange: "It's been an unusual market. I wouldn't have thought that energy stocks would correlate with technology stocks, but it's turned out that way. Things I thought would hedge against each other didn't."
But Lange says he's not about to abandon a strategy that has served him well over the years. "I've seen this happen before -- that's why I'm not panicky,
FUND FACTS
Fidelity Magellan (FMAGX)
Assets: $45.4 billion
Manager (year started): Harry Lange (2005)
Returns (vs. S&P 500)*
Year to date: 6.8% (13.8%)
One year: 10.7% (15.8%)
Three years annualized: 9.0% (12.0%)
Five years annualized: 3.2% (6.0%)
Ten years annualized: 7.1% (8.3%)
Expense ratio: 0.59%
Portfolio turnover: 74%
Initial minimum investment: closed
Phone: 800-544-8544
Web site: www.fidelity.com
Returns to Nov. 16.
Fund Fact sources: Standard & Poor's, Morningstar
and I'm stepping up my bets," he says. Lange says he's taking advantage of attractive values among growth stocks. "I've never gotten growth this cheaply compared with the market," he says. "This is the most extreme I've seen in running growth funds for the past ten years."
Lange says that managing a $45-billion fund isn't much different than managing Capital Appreciation, which had $7 billion in assets when he left it (and $8.4 billion today). "The styles are the same," he says. "There are small differences, but the core of the fund is in the same range, and holdings are in the same area." Lange has even said he believes Magellan can handle more assets. (Fidelity says it has no current plans to re-open the fund to new investors.)
Although Lange hasn't yet succeeded in mending Magellan, we're not ready to pronounce his term a failure. In fact, given his superb record at Capital Appreciation, Magellan's slimmer size and brighter prospects for shares of large growth companies after seven years of sub-par performance, we advise current shareholders to BUY Magellan.
View updated data for this fund and compare the performance of the 20 biggest no-load stock funds.
-
What is a Qualified Charitable Distribution (QCD)?Tax Breaks A QCD can lower your tax bill while meeting your charitable giving goals in retirement. Here’s how.
-
Embracing Generative AI for Financial SuccessGenerative AI has the potential to reshape how we approach learning about and managing our personal finances.
-
The 5 Best Actively Managed Fidelity Funds to Buy Nowmutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
-
The 12 Best Bear Market ETFs to Buy NowETFs Investors who are fearful about the more uncertainty in the new year can find plenty of protection among these bear market ETFs.
-
Don't Give Up on the Eurozonemutual funds As Europe’s economy (and stock markets) wobble, Janus Henderson European Focus Fund (HFETX) keeps its footing with a focus on large Europe-based multinationals.
-
Best Bond Funds to BuyInvesting for Income The best bond funds provide investors with income and stability – and are worthy additions to any well-balanced portfolio.
-
Vanguard Global ESG Select Stock Profits from ESG Leadersmutual funds Vanguard Global ESG Select Stock (VEIGX) favors firms with high standards for their businesses.
-
Kip ETF 20: What's In, What's Out and WhyKip ETF 20 The broad market has taken a major hit so far in 2022, sparking some tactical changes to Kiplinger's lineup of the best low-cost ETFs.
-
ETFs Are Now Mainstream. Here's Why They're So Appealing.Investing for Income ETFs offer investors broad diversification to their portfolios and at low costs to boot.
-
Do You Have Gun Stocks in Your Funds?ESG Investors looking to make changes amid gun violence can easily divest from gun stocks ... though it's trickier if they own them through funds.
