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 (FUND:FMAGX) fund -- has handed the reins to Harry Lange, one of the very best managers the Boston-based fund shop currently boasts.
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 (NYSE:GE), Microsoft (NASDAQ:MSFT), ExxonMobil (NYSE:XOM), and Intel (NASDAQ:INTC) -- has morphed over the years from a daring overachiever into an underperforming index hugger. Indeed, over the past three years, Magellan has lagged such dirt cheap S&P trackers as Fidelity's own Spartan 500 Index (FUND:FSMKX) and the SPDRs (AMEX:SPY) exchange-traded fund by more than two annualized percentage points -- despite the fact that its R-Squared score is 98.
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.
