Fidelity investments announced yesterday morning that it was re-opening its flagship Magellan fund (FMAGX) to new investors for the first time in nearly a decade.
Steven Syre at the Boston Globe thinks its a perfect time for investors to dive in:
The fund that has been closed to new investors for a decade is in the right place at the right time, favoring large growth stocks at a time when the market pendulum has swung into that category after years of preference for value-oriented equities. It moves easily around the world, investing 26 cents of every dollar under management outside the United States, at a time when a global perspective is necessary for superior performance (Finnish cellphone maker Nokia Corp. is Magellan's single largest holding).
There's more: Lange has managed Magellan for just two years, but he has a long record as a superior stock picker. Fidelity has stayed off Lange's back and let him pull together an eclectic portfolio, about 260 stocks of all sizes from all over the world. His big picture view of the global economy emphasizes information technology stocks (nearly 29 percent of the portfolio) and underweights financial investments (11.6 percent)."
Syre's logic is wrong on several counts.
First, while Magellan is about half the size it was in 2000 it is by no means svelt. The fund still has around $50 billion in investor assets.
Second, we've been harping on the comeback of large cap growth for awhile now (and upgraded large cap growth funds to our highest category rating in 2006). We've recommended funds like Vanguard Growth Index (VIGRX) and the ETF version Vanguard Large Cap Growth (VUG). In 2007 these funds were up around 12.5% while iShares Russell 2000 Value Index (IWN) was DOWN 10.3% and Vanguard Small Cap Value Index (VISVX) was DOWN 7.1%. That's a pretty big performance gap, which means you're getting in a little late to the resurgence of large cap growth party.
Lastly, and worst of all, is the statement "at a time when a global perspective is necessary for superior performance". What little solid performance this giant fund has delivered in 2007 has largely been because of a large foreign stock position - a relatively recent increase. This foreign stock allocation is going to drag on returns over the next 1 - 3 years and will be the main reason Magellan will continue to underperform the S&P 500. As long time readers of MAXfunds know, we're contrarian investors. This means we don't think foreign stocks are necessary for superior performance, even though about every domestic fund manager and fund analyst thinks so.
Bottom line, the best thing Magellan has going for it is low fees and a size and diversification that will prevent a major collapse relative to the market. Your chance of matching much less beating the S&P 500 over longer periods of time in this fund remains slim, which is what we've been saying since 2000.
Fidelity Magellan Fund Re-Opens
Fidelity investments announced yesterday morning that it was re-opening its flagship Magellan fund (FMAGX) to new investors for the first time in nearly a decade.
Steven Syre at the Boston Globe thinks its a perfect time for investors to dive in:
The fund that has been closed to new investors for a decade is in the right place at the right time, favoring large growth stocks at a time when the market pendulum has swung into that category after years of preference for value-oriented equities. It moves easily around the world, investing 26 cents of every dollar under management outside the United States, at a time when a global perspective is necessary for superior performance (Finnish cellphone maker Nokia Corp. is Magellan's single largest holding).
There's more: Lange has managed Magellan for just two years, but he has a long record as a superior stock picker. Fidelity has stayed off Lange's back and let him pull together an eclectic portfolio, about 260 stocks of all sizes from all over the world. His big picture view of the global economy emphasizes information technology stocks (nearly 29 percent of the portfolio) and underweights financial investments (11.6 percent)."
Syre's logic is wrong on several counts.
First, while Magellan is about half the size it was in 2000 it is by no means svelt. The fund still has around $50 billion in investor assets.
Second, we've been harping on the comeback of large cap growth for awhile now (and upgraded large cap growth funds to our highest category rating in 2006). We've recommended funds like Vanguard Growth Index (VIGRX) and the ETF version Vanguard Large Cap Growth (VUG). In 2007 these funds were up around 12.5% while iShares Russell 2000 Value Index (IWN) was DOWN 10.3% and Vanguard Small Cap Value Index (VISVX) was DOWN 7.1%. That's a pretty big performance gap, which means you're getting in a little late to the resurgence of large cap growth party.
Lastly, and worst of all, is the statement "at a time when a global perspective is necessary for superior performance". What little solid performance this giant fund has delivered in 2007 has largely been because of a large foreign stock position - a relatively recent increase. This foreign stock allocation is going to drag on returns over the next 1 - 3 years and will be the main reason Magellan will continue to underperform the S&P 500. As long time readers of MAXfunds know, we're contrarian investors. This means we don't think foreign stocks are necessary for superior performance, even though about every domestic fund manager and fund analyst thinks so.
Bottom line, the best thing Magellan has going for it is low fees and a size and diversification that will prevent a major collapse relative to the market. Your chance of matching much less beating the S&P 500 over longer periods of time in this fund remains slim, which is what we've been saying since 2000.
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