Bank and brokerage stocks are major winners for Magellan

Harry Lange, manager of Fidelity Investments' $39.4 billion Magellan Fund, bought financial stocks including JPMorgan Chase & Co. and Bank of America Corp., leading to the fund's biggest monthly gain in five years.

Lange increased his stake in banks and brokerage companies in March 1.9 percentage points, about $750 million, to 10 percent of the fund, data compiled by Bloomberg show. He invested $408 million in JPMorgan and $190 million in Bank of America.

In April, financial stocks reversed six months of declines that had been caused by the subprime-mortgage crisis. The Standard & Poor's 500 Financials Index gained 6.5 percent, including reinvested dividends, after dropping 28 percent in the preceding 12 months. Magellan, once the largest U.S. fund, matched the index and had its biggest monthly gain since April 2003.

"He's calling the bottom in financials," said Jim Lowell, chief strategist at Adviser Investment Management Inc., of Newton, Mass., whose clients buy Fidelity funds. "He's aggressively buying for the first time in a decade."

Lange, 56, has managed Magellan since October 2005 after running the Fidelity Capital Appreciation Fund for almost 10 years. Alexi Maravel, a spokesman for Boston-based Fidelity, said Lange declined to comment.

Lange invested $31 million in the Bear Stearns Cos. Inc., which almost collapsed in March before the Federal Reserve shepherded an emergency buyout by JPMorgan, the third-biggest U.S. bank.

Since slumping to $2.84 March 17, shares in Bear Stearns have more than tripled. JPMorgan gained 12 percent in April.

Bank of America, the second-largest U.S. bank, dropped 2.9 percent this year through May 1.

Lange increased his stake in Morgan Stanley by about $276 million and invested $165 million in the Goldman Sachs Group Inc. The securities firms rose 7 percent and 16 percent, respectively, in April.

He also bought a $100 million stake in Visa Inc., the credit card network that completed a $17.9 billion initial public offering in March. Visa has grown 94 percent since going public.

Lange decreased his stake in Google Inc. 400,000 shares, or about $229 million, based on the April 30 closing price. The company, owner of the most-used Internet search engine, rose 30 percent in April after falling 36 percent in the first three months of the year.

Lange also sold his $418 million stake in UnitedHealth Group Inc. and a $327 million stake in mortgage-finance company Fannie Mae.

UnitedHealth has declined 43 percent this year. Fannie Mae has fallen 24 percent.

Magellan, the largest U.S. mutual fund when it reached $110 billion in assets in 2000, reopened in January for the first time in 10 years. It had fallen 5.3 percent this year through May 1, while the Standard & Poor's 500 index dropped 3.4 percent.

The fund invests in large companies that Lange expects will show better-than-average growth in profit or revenue.

Over the last five years, Magellan has returned an average 10 percent annually, ranking it ahead of 63 percent of funds with a similar investment style. It has a Sharpe ratio of 0.04, compared with an average of -0.39 for peers. A higher Sharpe ratio means better risk-adjusted returns.

Fidelity, the world's largest mutual fund company, manages $1.6 trillion and serves 24 million customers.

Manager:

Harry Lange.

Assets:

$39.4 billion.

Performance:

Down 5.3 percent in 2008.

Key holdings:

Nokia Corp., Corning Inc., Canadian Natural Resources Ltd.

Ticker:

FMAGX.