The big mutual-fund news this week is Fidelity's re-opening of the Magellan fund, which shut its doors to new investors more than a decade ago. Magellan (symbol FMAGX) today is a different animal entirely than the fund made famous by legendary investor Peter Lynch, who steered it to a jaw-dropping 29 percent annualized return between 1977 and 1990 using a "buy what you know" strategy. Lynch's immediate successors continued to outpace the stock market, but by the early part of this decade, Magellan had morphed into a near clone of the S&P 500 index. When current skipper Harry Lange took the reigns in October 2005, he repositioned Magellan as a growth fund, ditching stodgy blue chips in favor of racier fare like Google, Corning, and UnitedHealth Group. He also stashed more than a quarter of the fund in foreign stocks. The fund lagged the market in 2006, but Lange's efforts paid off in 2007 when the fund gained 19 percent, beating the S&P 500 by 13 percentage points.
Should you invest in Magellan? Although its assets are less than half than its peak in the late 1990s, the fund is still a $45 billion goliath. That's noteworthy because asset bloat can hinder a manager's ability to move in and out of holdings without affecting their prices. Morningstar, for one, is confident that Magellan can handle the new inflows: "While Magellan's size poses a challenge for a manager who has historically derived a lot of performance from smaller stocks, we still think Lange can deliver excellent returns," writes analyst Dan Lefkovitz. The fund, which requires a minimum investment of $2,500, charges a below-average 0.54 percent in annual fees.
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