For the first time in a decade, new investors will be able to put money into a mutual fund that helped fuel Fidelity Investments' rapid...
BOSTON — For the first time in a decade, new investors will be able to put money into a mutual fund that helped fuel Fidelity Investments’ rapid growth in the 1980s and ’90s, but has recently seen many retirement-age investors withdraw their cash.
The nation’s largest mutual fund company said today it will reopen its $44.8 billion Magellan Fund to new investors effective Tuesday.
Boston-based Fidelity closed Magellan to new accounts on Sept. 30, 1997, after a run of market-beating returns in the 1980s by star money manager Peter Lynch and three lesser-known successors in the 1990s.
While Magellan has enjoyed recent strong returns, its size has dwindled from its peak of $102 billion in 2000 because of the 1997 closure, intended to protect existing investors by preventing the fund from becoming too big and unwieldy to manage.
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In recent years, Magellan’s investors have crept closer to retirement, when many redeem investments to pay for needs after their working lives.
“In fact, 85 percent of the fund’s assets are earmarked for retirement, and the baby boomer generation has now begun to retire and tap those dollars,” said Walter Donovan, president of Fidelity’s equity division.
Retirement-age clients typically make conservative investments to avoid having a sudden downturn deplete their nest eggs just before retirement.
By wooing new Magellan investors — particularly younger investors more comfortable making riskier investments — Fidelity hopes to give current Magellan manager Harry Lange greater leeway to choose growth stocks that might have conflicted with investors’ objectives in the past.
“We believe that generating new sales to offset future redemptions will help stabilize the fund’s cash flows, and assist Harry in most effectively directing investment strategies for the benefits of fund shareholders,” Donovan sad.
While the majority of Magellan’s holdings remain domestic stocks, Lange has expanded the fund’s international holdings amid faster economic growth overseas.
“If we’re able to achieve a better balance of cash flows in the fund going forward, I’ll regularly have the cash on hand to capitalize on attractive investment opportunities as I find them,” Lange said.
Eric Kobren, executive editor of Fidelity Insight, an independent newsletter for Fidelity investors, said Magellan “is a good, solid fund,” despite the recent withdrawals.
“It’s in the hands of a very capable guy,” Kobren said. “He’s more on the opportunist side when it comes to investments, and I think he will go overseas more now that the fund has been reopened.”
Magellan declined from $50 billion to $44.8 billion during Lange’s two-year tenure managing the fund.
During that time, Fidelity has hired more than 120 new research analysts, and increasingly has hired more experienced managers rather than recent college graduates.
Fidelity, which manages 431 mutual funds, credits the moves for helping turn around investment performance that had seen middling returns in recent years, in contrast with Magellan’s heyday in the ’80s and ’90s. For example, Magellan averaged a 29 percent annual return from 1977 to 1990 under Lynch.
Last year was Magellan’s best performance since 2003, with growing investments in technology stocks such as Google and overseas holdings. Magellan last year posted a nearly 19 percent return, compared with 5.5 percent for the Standard & Poor’s 500 index.
Fidelity’s biggest fund, Contrafund with about $78.3 billion in assets, has been closed off to new investors for nearly two years.