As the guy who runs point on the Fool's Champion Funds newsletter service, I'm always on the lookout for fund news our subscribers can use. I keep tabs on the industry's very best money managers, for example, by following their portfolio changes, tracking their asset-allocation decisions, and asking -- in our monthly Q&A interviews -- whether they themselves invest in the funds they manage.
You can crunch all the mutual fund stats in the world -- and believe me, I do -- but when it comes to gauging whether a manager's interests are truly aligned with yours, few details will ever tell you more than that one.
Geek out
So, fund geek that I am, these are indeed exciting times. On Halloween, Fidelity Investments announced that Bob Stansky -- the longtime manager of the world-renowned (and now-closed) Magellan
Magellan's wasn't the only management shake-up Fidelity announced. All told, on the scariest day of the year, the firm let fly with management moves at a dozen of its funds and portfolios, which raises the seasonally appropriate question: Should investors in any of the affected offerings be frightened?
Buying the manager
It's a good question because, for reasons I explain here, when you invest in a mutual fund, you're really investing in a fund's manager. And when the manager with whom you've entrusted your hard-earned moola heads for the exits, you should at least consider moving on, too. A fund, after all, can only be as strong as the person who's calling the stock-picking shots.
That said, one of the great things about mutual funds is that -- unlike, say, with stocks -- you never have to make snap decisions that you might regret later. With that in mind, after breaking the news on our dedicated Champion Funds discussion boards, I advised subscribers to keep on keeping on while I researched the new kids on Fido's block. That work is well under way, and I plan to offer our members an official recommendation about how to proceed as soon as I wrap up my due diligence duties. (Want the inside scoop, too? No problem. Click here for a risk-free one-month Champion Funds trial.)
Dud be gone
For now, though, it's safe to say this: Magellan is no longer on my list o' duds. Lange is a top-notch and adventurous stock picker, one with a willingness to zig where other managers zag. He's not afraid to load up on high-quality companies from areas of the market that he thinks look undervalued, either. At the end of September, for example, his former charge, Capital Appreciation (FDCAX), had more than 35% of its assets dedicated to tech stocks and less than 7% in financial names. The S&P, meanwhile, had roughly 15% and 20% dedicated to those sectors, respectively.
So, yep, I think a go-your-own-way manager like Lange is just what the doctor ordered for moribund Magellan, which sports an asset base of more than $50 billion. I've written in the past about the way this famous fund -- whose top holdings recently included the likes of GE
Say what?
What that means is that virtually all of Magellan's performance over that stretch of time can be explained by movements in the S&P 500 -- and that the small bets the fund has made haven't panned out. With that in mind, Magellan's seemingly reasonable price tag of 0.63% isn't so reasonable after all: There's simply no need to pay up for a fund that tracks (and underperforms) a benchmark as closely as this one has, particularly not when the aforementioned Spartan 500 and SPDRs will ding you just 0.10% and 0.11%, respectively.
With Lange at the helm, however, I think it's highly unlikely that Magellan will continue marching to the S&P's tune, and that means that fund fans everywhere should stay tuned for further developments here. This fund -- which Peter Lynch made famous back when he ran it from 1977 to 1990 -- could well be poised to return to its former glory.
Shannon Zimmerman is the lead analyst of the Motley Fool Champion Funds newsletter service, which you can test-drive for free for 30 days by clicking right here. Shannon owns shares of Fidelity Capital Appreciation. The Motley Fool has astrict disclosure policy.
