Magellan Fund

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The Fidelity Magellan Fund (ticker symbol: FMAGX) is a U.S. domiciled mutual fund from the Fidelity family of funds. It is perhaps the world’s best known actively managed mutual fund. On January 14, 2008, Fidelity announced that the fund would be re-opened to new investors for the first time in over a decade.

1 History of Managers
2 Performance
3 Assets Under Management ‘AUM’
4 References

[edit] History of Managers

Portfolio Manager	Tenure	AUM When Leaving
Edward Johnson, III	1963 to 1977	$20 million
Peter Lynch	5/1977 to 5/1990	$13 billion
Morris J. Smith	5/1990 to 7/1992	$20 billion
Jeffrey N. Vinik	7/1992 to 6/1996	$50 billion
Robert E. Stansky	6/1996 to 10/2005	$52.5 billion
Harry W. Lange	10/2005 to present

[edit] Performance

Period	Total Return	S&P 500 Return
2007	18.84%	3.53%
2006	7.22%	15.79%
2005	6.42%	4.91%
2004	7.49%	10.88%
2003	24.82%	26.68%
2002	(23.66%)	(22.10%)
2001	(11.65%)	(11.89%)
2000	(9.29%)	(9.11%)
1999	24.05%	21.04%
1998	33.63%	28.58%

Although most people believe that Peter Lynch is the cornerstone of Magellan’s performance, and ultimately the growth in assets invested in the fund, the best annual return the fund ever had was in 1968 when it returned 116.08%. In fact, the best three year record the fund had happened before Peter Lynch was at the helm when it returned 68.32% between 1965 and 1967.^[1]

Peter Lynch took the reins in May 1977 and remained the manager of Magellan for the subsequent thirteen years.^[2] Between 1977 and 1990 the fund averaged a 29% annual return. He created the investment process commonly referred to as “Buy What You Know”^[3].

Morris Smith replaced Lynch the manager of Magellan. During the two years he was there he managed to beat the S&P 500 by 7%. He decided to leave investing entirely after his experience at Magellan and has spent time pursuing religious activities.^[4]

Jeffrey Vinik spent four years managing Magellan and during that time he produced an 83.70% cumulative return and outperformed the cumulative S&P500 return by 5.91%. Vinik is most often remembered as the manager who moved a high percentage of the portfolio out of technology stocks and into bonds at the wrong time, causing Magellan to underperform its peers for the first time in the fund’s history. However, others argue that Vinik merely moved into bonds early. Vinik moved Magellan into bonds in the fall of 1995. In the seven years ending in March of 2003, on a total return basis, 10-year Treasuries returned 78 percent, AAA corporate bonds returned 46 percent, and, with dividends reinvested, the S&P 500 returned 31 percent. In addition, Vinik's strategy would have avoided the dot com bust. ^[5]

Robert ‘Bob’ Stansky is a direct disciple of Peter Lynch’s having worked as his research assistant from 1984 to 1987. During his time at Magellan Stansky managed to return 238% for the fund. However, the S&P 500 index returned 274% during the same period. This marked the only regime where Magellan underperformed the market. Magellan’s portfolio closely resembled the S&P 500 during Stansky’s tenure--so much so that Stansky himself helped coined the phrase ‘closet indexer’.

Harry Lange represents a change for the Magellan fund. His approach is known as a go everywhere approach.^[6] This means he is just as likely to buy small cap stocks as he is large cap stocks, value as he is growth, US companies as he is international. During 2007, the first full year in which the fund's performance was fully attributable to Lange's stock selection, Magellan produced a 18.84% return (adjusted by dividend payments) outperforming the S&P 500 by 15.31.

[edit] Assets Under Management ‘AUM’

Fidelity earns its income, like most mutual funds, from fees charged on its assets under management. From the fund’s inception in 1963 through 1977 Magellan grew to $20 million in AUM. The $20 million fund Peter Lynch inherited grew to $13 billion in AUM during his tenure. During Morris Smith's tenure, AUM grew from $13 billion to $20 billion during his short tenure. During Jeffrey Vinik's it grew to $50 billion.

Bob Stansky certainly experienced the most volatility with respect to AUM during his time with Magellan. In July of 1996, his first month as manager, more than $3.5 billion was taken out of the fund as investors redeemed their shares and the portfolio experienced set backs. Stansky quickly moved out of bonds and into stocks to stop the assets from flowing out.

On September 30, 1997 Fidelity decided to close the Magellan Fund to new investors. They believed that the size of the fund was beginning to make it difficult to beat the market.

By the end of the century the Fidelity Magellan Fund had well over $100 billion in assets under management. For quite some time it was the single largest mutual fund in the world. In April 2000, Vanguard’s S&P 500 index fund displaced Magellan as the largest mutual fund in the world.

By the time Stansky retired in 2005 the assets under management for Magellan were back down to $52.5 billion.

Harry Lange took over Magellan and promptly changed the portfolio to reflect his view on the market. Today about 25 per cent of Magellan is invested in companies based outside the US. In May, 2006 Magellan made a capital gains distribution to shareholders of $22.11 representing roughly 18% of assets. As of 3/31/07 the total AUM for the Magellan Fund stands at $43 billion.

Lange has said that he believes Magellan can handle more assets. After being closed for over a decade, on January 14, 2008, Fidelity announced that the fund would be re-opened to new investors, after being closed for ten years [1].