Making the Most of Fidelity Magellan
An owner's manual for America's biggest actively managed fund.
An owner's manual for America's biggest actively managed fund.
It owns hundreds of big stocks in a diverse group of industries. It has moderate expenses and low turnover, too. Is it an index fund? No, Fidelity Magellan (FMAGX) is actively managed. You can tell by its returns. Over the past three years, it's running 800 basis points (that's eight percentage points) ahead of the S&P 500.
It's closed to new investors, but millions own the fund and many more could own it if they elected to through a 401(k). So, figuring out how to use this legendary fund is an issue that confronts a boatload of people.
Back in its wilder days, past managers really did use the fund's broad charter to make bold moves between industries, market caps, and even between stocks and bonds. Fidelity calls Magellan a "go anywhere" fund and bristles at the idea that its scope might be limited.
It is, though, and that makes it much easier to manage. Manager Bob Stansky has reined in the portfolio so that it can get along with the rest of your holdings. Stansky has kept the fund fully invested in large caps while maintaining broad sector diversification. He's generally kept the fund between an even mix of value and growth and a moderate overweighting in growth.
The fund's first-quarter portfolio had 9% more in growth stocks than value, though it had less in technology than the S&P 500. Last week's shareholder report revealed that Stansky is no rush to build back the fund's tech stake. He's particularly wary of hardware companies that he fears will need a while before they've unwound their inventory glut. Another sign of S&P-like exposure is the fund's R-squared of 96. That means it's movements closely track the S&P's even though Stansky has made the modest differences pay off in the end.
With the fund's broad diversification, it makes a nice core holding, but not a sole holding. You could make it your only large-cap holding, but to be on the safe side, I'd probably add a value fund to the mix. But what you really need are small- and mid-cap funds. Magellan has about 7% of assets in mid-caps and nothing in small caps. Whether you add mid-blend and small-blend funds or pair value and growth funds, you don't want to go without smaller stocks. This year is a case in point: Magellan's 12% year-to-date loss is pretty good when you compare it with other large-blend funds and the S&P 500. However, the average small-value fund is up 9% and the typical mid-value fund is up 1% for the year to date.
Poll Results
Last Tuesday we asked which fund manager would be the next to run for public office. Opinion was divided, but Foster Friess of Brandywine Fund (BRWIX) got the most votes with 33% of the total.
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