The Fidelity Magellan fund, it is fair to say, has had its ups and downs. This should perhaps be no surprise given it was launched in 1963. Since then it has had eight managers, each one doing things differently from the last.
It rose to prominence under its third manager, the legendary Peter Lynch, who averaged a 29% annual return following his ‘buy what you know’ mantra. The level of outperformance may have fallen under the next two managers, Morris Smith and Jeff Vinik, but both still beat the S&P 500 and their peer group consistently and assets kept growing.
Under Robert Stansky the fund became the poster child for what would be called ‘closet trackers’ and performance dipped.
Change came in the form of Harry Lange with his ‘go everywhere’ approach, who invested across styles, market caps and geographies. Active share unsurprisingly went up.
But what of today? How is the fund run by current manager, Jeffrey Feingold (pictured)? We asked portfolio analytics firm Style Research, which specializes in scrutinizing holdings, to provide independent insights into this fund.
Style Research verdict
President, North America
When Jeffrey Feingold took over the management of the Fidelity Magellan fund in September 2011, the fund become more benchmark-aware, with country, sector and size allocations becoming more controlled versus the fund’s S&P 500 benchmark.
The fund’s non-US positions dropped from around 20% to close to zero. The mega-plus-large and mid-plus-small market cap weightings moved from a 60/40 split to 80/20, closer to the benchmark’s 90/10 split. Many tiny remnant positions were also eliminated, with the number of stocks dropping from over 200 to around its current 100 (the typical large growth manager holds around 60).
The fund has also maintained modest active sector weights versus the S&P 500. These, however, differentiate Fidelity Magellan from the typical large growth fund.
For example, over the past five years the fund has been only 3% overweight, on average, in info tech. However the typical large growth manager, using Morningstar’s US equity Large Growth (US Domicile) peer group, has averaged around 9% overweight during the same period.
And while large growth peers have typically been around 8% underweight in financials over the past six months, the fund was 7% overweight on average during the same period. Now, what about style factors and the types of stocks being selected?
The chart shows a recent Style Skyline™ for the Morningstar US Large Growth peer group versus the S&P500 (x-axis). The Fidelity Magellan Fund is moderately biased (Style Tilts™ between 1 and 2) towards growth (green bars) versus the index on factors such as historic 3-year sales growth and forecast 12-month earnings growth.
The fund is also expensive on key value factors (blue bars) such as earnings yield, sales to price, Ebitda to enterprise value (EV), and with a very significant -3.1 tilt to low dividend yield. Quality/ stability factors (purple bars) are somewhat neutral to slightly negative. And the fund also has significantly higher market beta and higher momentum than the index with tilts of 2 or more.
This confirms the footprint of a classic growth orientation, along with other factor biases.
But the position relative to the peer group also raises some interesting differentiators.
For example, the typical large growth fund has a significantly negative book to price Style Tilt™ of -2.2 i.e. significantly more expensive than the index. However, the Fidelity Magellan Fund has a valuation underpinning along with growth by virtue of a slightly positive book to price tilt.
That positive value orientation, while modest versus the index, is uncommon for a large growth fund. A similar interpretation holds for free cash flow yield. An index-like market cap also differentiates the fund from large growth competitors who are typically underweight mega cap stocks versus the S&P 500.
Effective fund evaluation often requires more than just an index-relative analysis. Contrasting against the opportunity set of competing funds leads investors to new discoveries about the Fidelity Magellan fund.