Feingold: Magellan's Size Can Be an Asset

Christopher Davis: Fidelity Magellan is one of the most famous mutual funds of all time. It grew to prominence especially in the late 1970s and 1980s under a wildly successful manager, Peter Lynch. Today joining us is one of Lynch's successors, Jeff Feingold, who took charge of Magellan late last year.

Thanks, Jeff, for joining us.

Jeff Feingold: Thank you, Chris. My pleasure.

Davis: You previously ran Fidelity Trend. It was a little bit over $1 billion in assets. When you took over Magellan, which is about 15 times the size, could you talk about how you coped with those sorts of challenges?

Feingold: Sure. At the end of the day, my process really hasn't changed. I have the great luxury of being at Fidelity with an enormous staff, an enormous research department, where each and every day we're really hunting for the best growth companies. And for the last five years managing Trend and the other funds that I've managed, I developed a process to really hunt for as many companies as I could. So, first and foremost, really the process is about finding great growth companies. And growth companies don't come in any one size or shape, and so there are a lot of different areas where we can look for great companies. Actually, the asset base of Magellan, and having a larger asset base, allows me to look for both large companies and small companies--small companies that are going to become great mid-cap companies, and mid-caps that will become great large caps. At the same time, as a larger fund I can also continue to look at great companies like Apple, IBM, and other companies that are large-cap, quality companies.

Davis: Your predecessor, Harry Lange, fared poorly overall. Magellan has a relatively poor long-term record, as well. He had a real gutsy style though, but it backfired at times, so the temptation might be to play it safe.

Because you have some very high-growth and some expensive names in your portfolio, could you talk about how you balance taking risk and return in seeking opportunities?

Feingold: Yes. That's an excellent question. At the end of the day, shareholders just deserve excess return and alpha, and that is our job at Fidelity. And each and every day in each and every year, we're hunting for great companies. At the same time, I do have a process that is different from Harry's. My process is one of delivering consistent excess returns over time. With Trend, I was able to do that during the last roughly five years, and there's an opportunity for me with Magellan to continue to do the same thing. 

I hope to outperform in the up markets and generally lose less in the down markets. That's been my strategy as it relates to running money with the other funds, and that's generally worked. So that'll continue to be the strategy with Magellan.

Davis: When you look at your top holdings, it really is an eclectic mix. You have Apple at the top of the portfolio, but you have steady-Eddies like Exxon Mobil and Procter & Gamble and some financial firms like J.P. Morgan Chase. Could you just talk at least generally about this mix, how it plays in your strategy, and how you put together your portfolio?

Feingold: Yes. I think there are two reasons why you see that. One is I'm generally pretty sector-diversified. On balance, I'm not taking large sector bets, so that's number one. Number two, I'm a growth manager, but I really do believe growth comes in different forms. I'm looking for companies that are growing faster than the market, both with regard to sales or earnings, and there are companies in all different industries that have done that.

During the last five years, some of the best stocks that I've had have been actually companies in nontraditional growth areas, companies like Herbalife, which are consumer staples companies. So I think, what you'll see and continue to find in the top 10 holdings and in other holdings is a pretty eclectic mix because I'm looking to find growth in different areas, and there's different types of growth. 

There's growth that comes from companies growing very fast as it relates to sales and earnings. There's companies that are growing that may not have been growing historically but are now actually growing or that I hope to see grow during the next couple of years, and that often can lead to outperformance, as well.

Davis: Well, Jeff, you're off to a really strong start at Magellan, and I hope you can keep it up. Thanks for joining us.

Feingold: Thank you very much. I appreciate it.

Davis: I'm Christopher Davis with Morningstar.com.