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Financial Times: Magellan sets course for overseas markets

By Deborah Brewster
Published: February 16 2006 02:00 | Last updated: February 16 2006 02:00
Fidelity's flagship Magellan fund is undergoing a sharp change in direction, with its new manager dumping big-name US consumer stocks such as Home Depot and Pfizer and putting a quarter of the fund into overseas markets.
Fidelity last October appointed Harry Lange to head Magellan in an attempt to return the $51bn fund to its glory days. Once a star performer and the biggest fund in the US, Magellan has in recent years regularly underperformed the Standard & Poor's 500 index and is half its former size.
It appears that Mr Lange has moved quickly. During the December quarter, Magellan lifted its non-US holdings to 25 per cent from only 4 per cent, according to regulatory filings.
He has also taken the axe to nearly all of the fund's top holdings, and sharply lifted exposure to technology companies.
General Electric is the only name that remains in Magellan's top 10 holdings, and mobile phone company Nokia has replaced it as the fund's biggest holding.
During the quarter, Magellan bought 60m Nokia shares, lifting its holding by 56 per cent. At the same time, it sold 44.4m GE shares.
Magellan also massively increased its investment in Royal Dutch Shell, to 20.5m shares from just 1m.
The fund is not alone in its move to non-US markets. US investors last year put more money into international stock funds than they did into US domestic funds for the first time in at least a decade. At the same time, many diversified stock funds shifted money from the US market to other markets.
Magellan has been criticised for sticking too closely to the S&P 500, holding US large cap stocks and making it difficult for the fund to offer returns above the index, especially after trading costs and management fees were taken out.
It appears its new direction will see it sharply diverge from the index. In the December quarter, Magellan sold 88m shares of its second biggest holding, Microsoft – a stake worth about $2.4bn at yesterday's price. It also sold almost its entire stake in Home Depot, offloading 110m shares and keeping only 5m, and almost its entire stake in Pfizer.
It sold $5bn worth of Intel stock, which last year heavily underperformed. Procter & Gamble, Altria and AT&T are other stocks which Magellan sold down heavily, according to analysis from Georgeson ShareholderAnalytics.
Apart from overseas stocks, Mr Lange has lifted buying of tech stocks, which now account for 25 per cent of the portfolio, well above the benchmark.
Jim Lowell, who publishes a newsletter on Fidelity, said: “I upgraded Magellan from a sell to a buy as soon as Harry Lange took over, because I knew that he is a go-anywhere stockpicker and that he would do two things – significantly boost tech, and become a global growth fund.”

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