For most of the past decade, Fidelity Investments' Magellan Fund has looked more like a ghost ship than a flagship.
But a new manager finally seems to have pointed the once-stellar mutual fund in the right direction.
Jeffrey Feingold celebrated his first full year as portfolio manager of Magellan (FMAGX) last month with impressive returns.
The fund was up nearly 20% year-to-date through Oct. 2, compared with a 15% return for the S&P 500. That placed it in the top quintile of large-cap funds, according to Morningstar Inc.
Just 27% of such funds have beaten the S&P this year, according to Morningstar.
How has Mr. Feingold done it?
First, he has cut the fund's exposure to international companies to less than 10%, down from the 20% to 25% exposure favored by the previous manager, Harry Lange.
Second, Mr. Feingold has focused his stock picking on companies in high-growth sectors of the market such as health and wellness.
He also has had help from Fidelity's 150 analysts worldwide.
“If I can't succeed here, I can't succeed anywhere,” said Mr. Feingold, who joined Fidelity as a stock analyst in 1977.
Unfortunately, however, his performance hasn't convinced investors to stop yanking assets from the fund.
Since 1999, investors have pulled $75 billion more out of the fund than they have put in. Today, the fund's assets stand at $15 billion, down from more than $110 billion at its peak in 2000.
Among financial advisers, Magellan, once the largest stock fund in the world, is more ordinary than extraordinary.
“There are a lot of good funds out there,” said Todd Calamita, president of Calamita Wealth Management. “You've got to really narrow down the ones you track, and understand them.”
Originally managed by Fidelity's chairman and chief executive Edward C. “Ned” Johnson, Magellan became a household name under Peter Lynch in the 1980s. By investing in growth companies with solid fundamentals, Mr. Lynch led the fund to an annualized gain of 29% a year from 1977 to 1990, compared with 15% for the S&P 500.
DOWNWARD SLOPE
In more recent years, the fund has fallen on hard times.
Peter Stansky, who managed the fund from 1996 to 2005, could never shake off the reputation of “index hugger” and had very middle-of-the-road returns.
Mr. Lange, Magellan's manager from 2005 to 2011, earned an annualized return of -1%, trailing 90% of large-cap funds over that time.
For Mr. Feingold to bring Magellan back to full sail, he has to do two things: beat the S&P 500 over a sustained period of time and remind investors of the fund's glory days under Mr. Lynch.
“The fund's always been about Peter Lynch and it will always be about Peter Lynch,” said Lee Munson, president of Portfolio LLC.
Mr. Feingold, who was 7 when Mr. Lynch first started managing Magellan, meets occasionally with the former star manager to seek his advice.
Although Mr. Feingold is off to a great start, he realizes that in order to change advisers' minds about the fund, it will take more than a year and a classic name.
“A name will only go so far,” he said. “At the end of the day, performance is all that matters.”
jkephart@investmentnews.com Twitter: @jasonkephart
