There’ll be some changes made to the Fidelity Magellan Fund (FMAGX).
Harry Lange, who began running the fund on October 31, is expected to do things far differently than his predecessor, Robert Stansky, including making bigger sector bets, especially in technology, and adding more foreign flavor to the portfolio.
Philip Edwards, managing director of fund research at Standard & Poor’s, thinks Lange will be more willing to consider a broader range of stocks for Magellan than Stansky did. Edwards also believes Lange will be more likely than Stansky was to take more “contrarian positions,” that is, buying stocks when they are out of favor.
“Lange is cut from the classic cowboy cloth of the go-anywhere manager,” said Jim Lowell, the editor of Fidelity Investor, a newsletter. “He has demonstrated no sort of adherence to one style.”
Lange himself has said he invests in growing companies as well as stocks he thinks are undervalued.
Fidelity watchers note that Lange has a background in tech stocks and they envision him increasing Magellan’s exposure in that area. (Lange has served as a technology stock analyst for Fidelity, and he previously managed the Fidelity Select Computers Fund (FDCPX) and the Fidelity Select Electronics Fund (FSELX)).
Lowell pointed out that the Fidelity Capital Appreciation Fund (FDCAX) that Lange had run for nearly a decade before being reassigned had about 35% of its assets in technology at the end of September. By comparison, those companies made up about 15% of the S&P 500 index, and some 21% of Magellan, Lowell said.
To get cash to buy technology stocks, Lowell thinks Lange will sell some of Magellan’s holdings in the financial services sector.
Lowell believes Lange will also show more interest in foreign stocks than Stansky. To support that argument, Lowell said companies overseas accounted for nearly 26% of Capital Appreciation’s holdings at the end of the third quarter, compared to Magellan’s 4%.
Lange himself has said that he is willing to invest in companies of any size, but people familiar with Magellan doubt that its new manager will be able to add many small-cap stocks. The fund’s mandate, they explain, does not allow it to own more than 10% of any company, and that makes it difficult for a small stock, or even a collection of them, to significantly boost returns.
“From a practical standpoint, Magellan is locked out of small caps,” said Jack Bowers, the editor of Fidelity Monitor, another newsletter. At best, Lange might be able to invest in mid-sized companies that are growing into large ones, Bowers said.
Edwards echoed those thoughts. “The size of Magellan will be a significant handicap for Mr. Lange,” he said. “Even if he looks over the entire universe of stocks and selects broadly, it is still going to be primarily a large-cap portfolio.”