Mixed bag at Fidelity
It's been nearly two years since Fidelity Investments dispatched new managers to take over two of its biggest mutual fund stars of years past and try to revive them from long stretches of stock-picking torpor.
Harry Lange was put in charge of the famous Fidelity Magellan fund in October 2005, taking over for Bob Stansky. At the same time, Tim Cohen was selected to manage the merely huge Fidelity Growth & Income fund formerly run by Steven Kaye.
Today, one fund looks like a rejuvenated performer putting up very good numbers with a distinct investment strategy. The other remains stalled, performing worse than its primary benchmark and a wide majority of its fund peers.
Lange has turned the $43 billion Magellan as far from its index-hugging past as you can imagine. He concentrates a lot of money in one industry. He buys stocks all over the world. He owns a number of companies that would have been considered much too small for a fund like Magellan.
"He's playing to win, and you could argue Stansky was not," says analyst Dan Lefkovitz, who follows Magellan for Morningstar Inc.
The fund once considered too big to succeed is looking nimble and running circles around the Standard & Poor's 500 index so far this year. Magellan was up 11.6 percent for 2006 earlier this week, more than double the performance of the S&P 500 and among the top 25 percent of its fund peers.
After a slow start, Magellan had pulled within a percentage point of the S&P 500's performance during the Lange era through August.
"It took him a while but clearly he's on the right course now," says James Lowell, publisher of the Fidelity Investor newsletter. "I think this is a manager you can take to the bank."
Lange has invested nearly 30 percent of his money outside the United States, looking for growth stories all over the world. His big concentration in information technology stocks, accounting for 29 percent of the fund, and a relatively small exposure to financial service companies have helped.
On the other hand, Growth & Income has bet on comeback stories that haven't come back yet. Cohen's exposure to home builders and financial stocks has also hurt.
The fund has invested 37 percent of its money in its 10 largest holdings, with weak results. Gains by the likes of Google Inc. and General Electric Co. have been offset by losses from stocks like Wachovia Corp., Home Depot Inc., and (gulp) Countrywide Financial Corp.
Growth & Income earned just under 4 percent so far this year and gained 12.7 percent over the past 12 months. Those numbers put Cohen far in the back of the pack of his fund peers.
"Although we're disappointed in the fund's recent misfires, investors have reason enough to keep the faith here," analyst Greg Carlson of Morningstar wrote in a report on Growth & Income last month. Carlson says patience is warranted by Cohen's strong record at another Fidelity fund.
One big investor, Fidelity itself, apparently decided otherwise. Growth & Income's assets plunged 21 percent in August, to $22.7 billion. Carlson attributes that to a decision by Fidelity's time-targeted Freedom funds, which invest in other Fidelity funds, to dump their Growth & Income shares.
"That's an interesting version of insider selling," notes Lowell.
Cohen isn't out of time yet, but he's on the clock. A more immediate question for Fidelity: When will it reopen Magellan to new investors, now that customers may actually want to buy it again?
Roger Lawson, the once and current Fidelity executive, made hay selling Magellan shares many years ago. Maybe he should try again.
BOSTON CAPITAL BLOG Steven Syre is a Globe columnist. Read his daily blog at boston.com/business. He can be reached at syre@globe.com.
