Fidelity reopening its flagship Magellan fund to new investors
Fidelity Investments was reopening its flagship Magellan mutual fund to new investors Tuesday, hoping to capitalize on the rejuvenated performance of the iconic fund to tap into a new generation of workers.
While Fidelitys mutual fund offerings posted strong performances in 2007, big competitors such as Vanguard Group and American Funds have been much more successful in recent years in attracting cash.
Last year through November, for example, Vanguard took in $70.6 billion in new money, compared to just $2 billion for Fidelity.
It has been six years since Fidelity ceded its crown to Vanguard as the worlds largest manager of stock and bond funds.
One reason why: Until Monday, half of Fidelitys largest, most popular funds were closed to new investors. Fund companies stop the flow of new money into funds when their size becomes too unwieldy for the manager to invest all that cash.
Closing a fund can help its performance, but at the cost of shutting out new customers.
Magellan, which has been closed to new investors since 1997, now has about $45 billion in assets, less than half the amount of money it held at its peak. About 85 percent of its assets are held in 401(k) accounts and similar retirement savings plans.
With the first wave of baby boomers reaching retirement age, many of the funds investors are beginning to tap their retirement savings and redeem their shares. That has frustrated Magellans manager, Harry Lange, by forcing him to sell shares to pay for those redemptions.
“I sold a lot of stocks I would have preferred not to,” Lange said Monday. “It was getting into the meat and bones” of the fund.
Reopening Magellan also is a declaration of confidence in Langes performance, after Magellan returned 18.8 percent to investors last year versus just a 5.5 percent gain for the broader stock market, as measured by the Standard Poors 500 index.
The performance is part of an overall improved record at Fidelity, following a push to beef up its stock research staff.
The gains come at an important time for Fidelity, which was rocked by management changes last year as it responded to growing competition and uncertainty surrounding the future of the family-controlled company and its chief executive, 77-year-old Edward Johnson 3rd.
Fidelity manages hundreds of funds, with varying investment philosophies, that it sells directly to consumers and through financial advisers.
But Magellan captured the popular imagination in the 1980s, when it was managed by Peter Lynch.
Lynchs folksy investment advice and spectacular results - he averaged returns of almost 30 percent a year during his 13-year tenure - turned him and the fund into a star.
However, Lynchs record was not the best career performance turned in by a Magellan manager; that honor belongs to his boss, Johnson, who averaged returns of 30.5 percent when he ran the fund in the 1960s.
Fidelitys equities chief, Walter Donovan, said Monday there were no plans to reopen the $80.9 billion Contrafund, or another large product, Low-Priced Stock fund, with $35.2 billion, though Fidelity will continue to review both portfolios.
Analysts who follow Fidelity say Magellan is uniquely positioned to take new money compared with the other two, however. For one thing, Langes aggressive investing style has kept just 1 percent of its total assets in cash, forcing him to sell shares more often to pay for redemptions.
