Magellan rebounding after change of manager

Fidelity Investments' flagship Magellan mutual fund beat its peers in 2005 for the first time in several years, a strong opening performance by its new manager, Harry Lange.

Since taking over at the end of October, Lange appears to have piled into foreign and technology stocks, both of which have had a nice run lately. Magellan's recent record was one of several bright spots for the Boston mutual-fund giant in 2005, which last year shuffled executives in a bid to restore performance.

Some other large funds still lagged behind their peers, including Fidelity's Growth & Income portfolio, which had $32 billion in assets at the end of 2005, and its Low-Priced Stock fund, with $37 billion in assets.

Fidelity's largest fund, the $58 billion Contra fund, continued its strong run, posting returns of 16.2 percent in 2005. The overall figures for 2005 suggest Fidelity is making progress, said Chris Traulsen, analyst for Morningstar.com, which tracks mutual-fund performance. ''It was a good year for the shop, but some of their big funds, they've still got to fix," he said.

Morningstar figures showed Magellan posted returns of 6.4 percent last year, 1.5 percentage points better than the 4.9 percent return of the Standard & Poor's 500, a widely used benchmark. As of Dec. 31 the net assets of the fund stood at $51 billion.

Magellan had not beaten the S&P 500 since 2001, when it was headed by longtime manager Robert Stansky. He stepped down last year and was replaced by Lange, previously manager of Fidelity's smaller Capital Appreciation fund.

At the time Lange's comments suggested he planned to shift Magellan's holdings from the financial-services stocks and other blue chips that Stansky favored into many smaller companies.

Fidelity declined to make Lange available for an interview. Company spokeswoman Anne Crowley cautioned that it was too early to judge his long-term returns.

''He's definitely put his own stamp on the fund, which is what we expected him to do," Crowley said. ''He's always had a flexible investment style, and that fits well with the capital-appreciation objective of the fund."

Fidelity hasn't reported exactly which stocks Lange bought and sold since taking over. But an analysis provided by Fidelity Investor, a Wellesley newsletter, shows Magellan's performance took off following Lange's arrival. The fund rose 5.4 percent in the two months he ran Magellan in 2005, compared to just a 1 percent increase for the previous 10 months.

Newsletter editor Jim Lowell compared the figures to a preliminary test result a doctor might use to judge a patient's health while awaiting more complete data. ''We now know Lange has a pulse," he said. ''But we haven't done any blood diagnosis because we haven't been able to withdraw the needle."

Some of the gains may just be due to rises in the markets overall in late 2005, when the Dow Jones industrial average flirted with the 11,000 mark. But Fidelity has already released statistics on its website that give a flavor of the sorts of changes Lange has made.

Most notably, he is credited with increasing its foreign holdings, which were just 2 percent of Magellan's stocks in September, according to Morningstar. As of Nov. 30 the figure had risen to 20 percent, including 7 percent in Japan.

Lange also has changed some of Magellan's domestic stakes dramatically. Information-technology stocks were 21 percent of the portfolio at the end of October, but 28 percent as of Nov. 30. Internet-search company Google is one stock that's drawn a lot of attention from Fidelity; securities filings show that Fidelity has become the largest institutional shareholder of the search company.

Healthcare and materials-companies holdings are also up as a percentage of Magellan's holdings. Meanwhile Lange has cut the fund's stake drastically in ''consumer staples," such as drugstores, beer companies, and soft drink makers.

The moves likely increase the riskiness of Lange's portfolio, said Morningstar's Traulsen, since the prices for the sectors he added tend to have a greater multiple of future earnings. But that's probably a good thing, considering how previously Stansky's low-risk investments wound up mirroring benchmark indexes and failed to distinguish the fund.

Stephen P. Jonas, executive director of Fidelity's investment-advisory unit, seems to be pressing the funds to act more independently, Traulsen said.

''That's a clear stated objective of Jonas and his group, to get some differentiation between the funds and their benchmarks," Traulsen said.

Ross Kerber can be reached at kerber@globe.com.