Magellan is back, with '90s-like returns

Fidelity Investments' Magellan Fund is generating its highest returns since 1993 by buying more technology stocks and shares of companies outside the United States.

Manager Harry Lange, who replaced Robert Stansky in October 2005, has 29 percent of Magellan's $45 billion in non-U.S. stocks including China Life Insurance Co. Ltd., which has risen more than sevenfold since he bought the shares about 18 months ago. He has another 29 percent in technology-related companies, led by Finland's Nokia Oyj, the world's biggest maker of mobile phones.

Magellan has advanced 21 percent this year, outperforming three-fourths of competing mutual funds that invest in companies with above-average earnings growth, data compiled by Chicago-based research firm Morningstar Inc. show. Magellan's return doubled the Standard & Poor's 500 index, after trailing the benchmark for six of the last 10 years, including 2006, when it rose less than half as much as the index's 15.8 percent gain.

"Is Magellan back? Absolutely," said James Lowell, chief strategist at Adviser Investment Management Inc., of Watertown, Mass., whose clients buy Fidelity funds. "Lange is trouncing the index, and it's because the fund is now in the hands of a global, growth-oriented manager."

Lange, 55, said in an interview that when he took over Magellan on Oct. 31, 2005, he was prepared to be "aggressive" by putting more money into non-U.S. stocks and not confining himself to the S&P 500 index.

Lange changed nine of Magellan's top 10 holdings in his first two months. Selling S&P 500 stocks including Pfizer Inc. and Exxon Mobil Corp. before they started to rally hurt returns last year.

Stansky, 51, who oversaw Magellan from 1996 to 2005, was criticized by investors for mimicking the S&P 500. Stansky said he was only staying within boundaries set by the fund's prospectus.

Lange does not adhere to indexes. His stake in technology companies is twice that of the S&P 500. And Lange's predecessors had virtually no investments in non-U.S. companies.

"It's a go-anywhere fund," Lange said. "I doubled up on growth stocks in 2006 because they were the cheapest in seven years, and this year they started getting rewarded."

Magellan became the biggest actively managed equity fund, climbing to $110 billion in August 2000, after it was run by Peter Lynch from 1977 to 1990, Morris Smith from 1990 to 1992, and Jeffrey Vinik from 1992 to 1996. Lynch, 63, produced average annual returns of 29 percent by buying shares of companies every person can understand, such as carmakers and clothing stores.

The fund was battered during the bear market of 2000 to 2002 and suffered more than $50 billion in investor withdrawals and market declines while returns fell behind those of competitors.

Magellan has been closed to new investors since 1997. Adviser Investment Management's Lowell said now might be a good time for Boston-based Fidelity, the biggest U.S. mutual fund company, to reopen Magellan.

"They not only have a performance story to tell, they have one to sell," Lowell said.

Lange said that Fidelity decides to reopen funds "from time to time" and that it will evaluate the option.

Lange, who holds degrees from the General Motors Institute, now called Kettering University, and Harvard Business School, has invested in countries where economic growth and share prices were outpacing the United States'. The Morgan Stanley Capital International EAFE Index, which tracks 1,136 companies in developed economies in Europe, Australia and Asia, rose 15 percent this year, and MSCI's Emerging Markets Index climbed 39 percent.

"It felt to me that there is more growth opportunity in international markets than in the U.S. markets, and they have certainly done well for the fund," Lange said.

Lange, who spends 40 percent of his time on the road, said he had accumulated 5 million airline miles traveling around the world to meet with executives at his top companies.

Lange has 6 percent of the fund's assets in Finnish companies, mostly Nokia, and 4 percent in Japanese shares including Yamada Denki Co. Ltd., that nation's largest consumer-electronics retailer. About 3 percent of the fund is in Canadian companies such as Canadian Natural Resources Ltd., that country's second-biggest producer of natural gas. The fund has 3 percent of assets in China. Shares of Yamada Denki, based in Gunma, north of Tokyo, advanced 21 percent this year. Calgary-based Canadian Natural's shares rose 14 percent.

Magellan's biggest holding is Nokia, which accounts for 5.9 percent of the fund's assets. Shares of Nokia have advanced 82 percent this year. Profit at the Espoo-based company more than doubled in the quarter ended June 30 after it introduced new phone models.

Manager: Harry Lange.

Assets: $45 billion.

Performance: Up 21 percent in 2007.

Key holdings: Nokia Oyj, Corning Inc., Google Inc., China Life Insurance Co. Ltd.

Ticker: FMAGX.

SOURCE: Bloomberg News

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