Magellan Skipper May be Falling Off Course

Buzz about Fidelity Investment's Magellan fund traveled quickly around the globe after manager Harry Lange took the helm last November, Reuters reports. 

After several years of poor performance, Lange switched courses last year, increasing the fund's foreign interests and cutting back on large-cap stocks. By March 31, Magellan outpaced the S&P 500 benchmark for the year.

Year to date, however, the fund now lags its benchmark, down 0.51%, compared to a 0.83% gain in the S&P 500.

Lange's predecessor, Robert Stansky, had a reputation for closely following the index. Lange moved to smaller, fast-growing companies, such as biotech company Genentech Inc., Google, and foreign companies including handset manufacturing giant  Nokia, and Nomura Holdings, the largest brokerage in Japan.

In fact, as of May, 27.2% of the Magellan fund was in foreign stock, compared to 5% under Stansky.

"He has put the fund in a precarious position," said John Bonnanzio, an editor at Fidelity Insight. In the past four years, the fund's outflows have cost Boston-based Fidelity $245 million in fees, he said.

Since March, Magellan's assets under management have sunk to about $46.6 billion from $50.4 billion.

"The big foreign stake has hurt pretty badly because foreign markets were hit harder than the U.S. market," said Morningstar analyst Dan Lefkovitz.

Still, neither Bonnanzio nor Lefkovitz see Magellan as a rudderless ship, and both believe Lange can get the fund back on course.

"Its chances for success are arguably better now than it has been anytime for a decade," Lefkovitz said.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.