Fund Times: Fidelity Magellan Goes from Flagship to Escort
Plus, will the layoffs ever stop?
Fidelity Magellan (FMAGX) turned in its worst showing in more than a decade last year: Its 49% loss for 2008 trailed the S&P 500 by more than 1,200 basis points, or hundredths of a percent, and landed the fund in the bottom 5% of its category for the first time since 1996. Financial holdings like AIG (AIG) and Wachovia (WB) as well as the more damaging tech and telecom holdings, such as Corning (GLW) and Nokia (NOK), were partly to blame. Manager Harry Lange has fared a lot worse in this downturn than we anticipated. Lange isn't an especially aggressive investor, his portfolio isn't highly concentrated, and he posted relatively good results in the 2000-02 bear market at Fidelity Capital Appreciation (FDCAX).
In addition, the fund now has less than $20 billion in assets for the first time since 1991, down from its peak of more than $100 billion in 1999. The contraction has increased fees for remaining shareholders by about 25% over the past year from 0.53% to 0.72%.
For those who would have to take a tax hit for selling, we still like the fund. As a core growth holding, however, we have more confidence in Fidelity Contrafund (FCNTX) manager Will Danoff. If investors want to stick with Fidelity, we think Contrafund's Dec. 15 reopening makes this an opportune time to trade up.
Harris Associates Against Supreme Court Reversal
An important case for the mutual fund industry and fund investors is winding its way through the courts. Harris Associates, advisor to the Oakmark funds, successfully defended a suit in the Seventh Circuit Court of Appeals last year that accused the firm of charging excessive fees. The plaintiffs (some Oakmark shareholders) appealed the case to the Supreme Court soon thereafter and a decision as to whether the Supreme Court will review the case is expected by March.
If the Supreme Court decides to overturn the Harris decision, it could mean a harsher standard than many areas of the country currently use to decide whether fees are reasonable. Under the current standard fees are only deemed excessive, according to the widely followed Gartenberg decision, if they are "so disproportionately large" that they could not be the result of arm's-length negotiations and bear no reasonable relationship to the services rendered. That has been too high an obstacle for plaintiffs to overcome so far. No investor has ever succeeded in a case in which they have alleged excessive fees.
GMO Has a New CEO
Investment manager GMO, run previously under a collective management structure shared between the seven members of its board of directors, appointed its first chief executive in more than a decade. Marc Mayer, former head of AllianceBernstein's mutual fund business and current CIO of its Blend strategies, will start at GMO in early March after 20 years at Bernstein.
Seth Masters will replace Mayer and once again become chief investment officer for AllianceBernstein's Blend mandates. He had previously held the CIO role from the inception of the Blend services in 2002 through June 2008.
The changes at AllianceBernstein come less than two months after longtime CEO Lew Sanders retired and was replaced by former Merrill Lynch and Goldman Sachs executive Peter Kraus.
Putnam Slashes 260 Employees
Putnam has dismissed 260 non-investment professionals, or about 10% of its workforce. The Boston-based firm saw its assets decline 42% last year to around $101 billion. In November, 2008 the firm fired 12 portfolio managers and hired five new mangers to help improve performance.
Statements of Additional Information
On May 1, 2009, DWS International Select Equity (DBISX) will be renamed DWS Diversified International Equity and will be taken over by Robert Wang and Russell Shtern of the firm's quantitative team. Expect the number of holdings to rise from the current 55 toward 100 because the other DWS quant funds have at least that many holdings.
Hotchkis and Wiley Large Cap Value (HWLAX) and the Hotchkis and Wiley All Cap Value (HWAAX), both of which have been closed to new investors since 2005, are accepting new investors. They had been closed to prevent asset bloat and to protect investors from "hot money," which are hardly a problem now. When they closed in July 2005, the Large Cap Value fund had $4.1 billion in assets and the All Cap Value had $221 million. The funds now have assets of $1.1billion and $27 million, respectively.
Hotchkis and Wiley also filed to offer its first high-yield bond fund. Ray Kennedy, who managed PIMCO High Yield (PHDAX) from 2002 to April, 2007, and had been at PIMCO since 1996, will run the new fund. Kennedy was known for his restraint at PIMCO. While the prospectus gives wide latitude, Kennedy expects to manage a simplified portfolio with just bonds.
Ryan Leggio does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.