Fidelity Magellan shows signs of life for future investment possibilities

Kiplinger's Personal FinanceJune 29, 2014 

Fidelity Magellan (symbol FMAGX), once the largest mutual fund in the land, has been flagging for more than a decade. But it may have finally found the right skipper in Jeff Feingold, who has guided Magellan to market-beating gains in his first two calendar years at the helm.

So is it time to invest in Magellan, which, with $16 billion in assets, should be far easier to run than it was in 2000, when assets peaked at $110 billion? Our answer: No, mainly because we think other large-company funds are more attractive. One good choice is Fidelity New Millennium (FMILX), which we recently added to the Kiplinger 25, the list of our favorite mutual funds.

Magellan today is far from the fund of yore. From 1977 to 1990, under Peter Lynch, it drew investors like bees to honey with an annualized return of 29.1 percent. After Lynch retired, the fund performed well for a time, but in the 12 years from 2000 through 2011, Magellan trailed the S&P 500 eight times.

Maybe that’s why Feingold wasted little time putting his stamp on the fund when he took over. In less than four months, Feingold says, he trimmed the number of stocks Magellan held from roughly 250 to about 225. And he steered the fund from one that held mostly fast-growing firms to one holding a more diversified mix of rapid growers (Google and Priceline, for instance). Plus, Feingold added what he calls quality growers, such as T.J. Maxx, and cheaply priced firms with improving results, such as airlines (American Airlines) and financial stocks (Bank of America). “I’m a diversified growth manager,” says Feingold. “I don’t make big sector bets.”

Given Feingold’s approach, investors shouldn’t bet on Magellan crushing the market. Feingold admits as much: “I want to outpace the S&P 500 by 1.5 to 2 percentage points per year.” In 2012 and 2013, the fund beat the index by 2.0 and 2.9 percentage points. In the first four months of 2014, the fund gained 0.9 percent, lagging the S&P by 1.7 points.

Feingold, 43, is a longtime Fidelity man. Since he joined the Boston-based behemoth in 1997, he has been a stock analyst, headed the firm’s research department, and managed five sector funds and four diversified funds. At every fund but one, Feingold outpaced the funds’ respective peer groups during his tenure.

One plus for Magellan is that it charges just 0.51 percent a year in fees. That’s among the lowest expense ratios for actively managed stock funds. Fees aside, we’d like to see another year or two of winning results before we recommend Magellan.

Nellie S. Huang is a senior associate editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@ kiplinger.com. And for more on this and similar money topics, visit Kiplinger.com.

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