Fidelity Magellan echoes glory days by trouncing benchmark
The stock-pickers are shining again at Fidelity Investments.
Fidelity Magellan, the mutual fund made famous in the 1980s by Peter Lynch, is trouncing its benchmark and peer group this year. Magellan returned 6% through Wednesday while the S&P 500 index lost 2.5% with dividends reinvested. The $19 billion fund was beating 95% of its competition as of Tuesday, according to data compiled by Bloomberg.
The market’s wild swings in February and March gave many active managers a rare respite after a decade-long battle against the rise of passive investing. Almost half of large-cap mutual funds are outperforming benchmarks in 2020, a sharp improvement from recent years, according to Goldman Sachs.
“Hopefully this is the beginning of another time period where Magellan can be synonymous with making money for investors,” said Sammy Simnegar, a Fidelity veteran of more than 20 years who took over running the fund in 2019 as Jeff Feingold retired. “It’s not enough to beat your peers — you have to beat your benchmark. Then there’s a very credible case to get back into active.”
Magellan benefited from remaining mostly cautious during the market swings, for instance staying overweight big tech stocks, said Eric Balchunas, a Bloomberg Intelligence analyst.
“It is being rewarded for not trying to get cute during the selloff,” Balchunas said.
Still, he said, Magellan and other active funds may face a tough slog in an environment where they can see outflows even when they outperform.
Fidelity’s active stock funds on average are beating their benchmarks by four percentage points year-to-date, according to Charles Keller, a company spokesman. Fidelity Contrafund, which at about $118 billion is the Boston-based firm’s biggest actively run equity fund, returned 6.8% this year, better than about half of its rivals, Bloomberg’s data show. Fidelity Blue Chip Growth, managed by Sonu Kalra, is up almost 14%.
Fidelity’s Magellan is almost entirely invested in U.S. equities, according to company data, with 34% of its portfolio as of April 30 allocated to technology stocks such as Microsoft and Apple, followed by health care at 14%. Part of its outperformance comes from avoiding value stocks more broadly, as well as banks and energy companies, said Robby Greengold, a Morningstar analyst who tracks Fidelity funds.
“The two things that really drive the fund are quality and momentum,” said Simnegar, 47. The portfolio manager said this year he bought graphics-processing chipmaker Nvidia after meeting Amazon.com and Microsoft officials in Seattle in February who raved about the company. He also sold airline and hotel companies he believes will suffer from less business travel.
The tech-heavy Nasdaq Composite Index is up almost 8% this year.
While Magellan is on a hot streak, it’s still a shadow of its former self — assets exceeded $100 billion at the fund’s peak two decades ago when it still bore the imprint of former star portfolio manager Lynch, who racked up 29% annualized gains while running it from 1977 to 1990. His successors included Jeff Vinik, who left Fidelity in 1996 to start a hedge fund.
Fidelity has made a bigger splash in recent years by going head to head with rivals such as Vanguard Group in slashing costs on index vehicles. The firm’s largest fund now is Fidelity 500 Index, with $224 billion of assets as of May 31.