The popular Fidelity Magellan Fund ("FMAGX") was made famous by fund manager Peter Lynch who preached value investing in familiar names. The fund operates with the same objectives for seeking undervalued brand name stocks and growth companies with strong fundamentals. Formed on May 2, 1963, it has an average annual return (AAR) of 15.83% since its inception, and the fund has been managed by Jeffrey S. Feingold since Sept. 13, 2011.
The $14.39 billion growth fund is invested in 152 holdings, as of Dec. 31, 2015, with an 84% turnover rate, as of Sept. 30, 2015. It has an 18.43 price-earnings (P/E) ratio, 0.97 Sharpe ratio and a 1.68% forward annual dividend yield. The 10-year AAR is 4.33%, the five-year AAR is 7.81%, the three-year AAR is 11.77% and the one-year AAR is -7.79%. The Fidelity Magellan Fund has a 0.7% expense ratio and a $2,500 minimum investment, as of March 2016.
Notable Portfolio Trends
The Fidelity Magellan Fund increased net exposure between March 2015 and March 2016 to its top sector of finance by 0.08% to 18.7% year over year (YOY). This, however, does not tell the complete story. The mid-year market sell-off stemming from the Chinese equity markets turmoil prompted the fund to cut exposure from a high of 22.2% in September 2015 to 18.7% by March 2016.
Technology services received a steady inflow of additional investments from a low of 9.4% in June 2015 to 13.9% by March 2016, becoming the third-largest sector of investment. The health technology sector investment fell by 1.3 to 13.9% YOY, and the process industries sector investment fell by 2.5 to 2.3%. Consumer non-durables received a net increase of 0.4 to 5.9%, while consumer services sector investments were cut by 2.2 down to 4.5%
The fund cut weightings in the United States by 1.1 to 88.7% YOY while raising investment in Ireland by 0.5 to 4.7%. The fund eliminated investment in France, Canada, Bermuda and the Cayman Islands, all of which accounted for a maximum of 1.2% of assets in 2015.
The fund took a risk-off approach across the asset classes to cut overall exposure and seek the stability of the mega caps. It raised distribution to mega-cap stocks by 7.6 to 56.4% while trimming large-cap exposure by 5.9 to 27.2% and mid-cap exposure by 0.7 to 13.6%.
Top 15 Holdings Trends
The fund decreased its top stock holding Apple, Inc. (NASDAQ: AAPL) by 1% down to 3.2% while increasing stakes in the second-largest holding General Electric Company (NYSE: GE) to 2.7% and social media giant Facebook, Inc. (NASDAQ: FB) to 2.5%. Amazon received increased investment of 1% up to a total of 2.3%. Google.com's parent company, Alphabet Incorporated Class C Shares (NASDAQ: GOOGL), had its allocation by 0.7 to 2.2%. These trends correlate with the aforementioned investment allocation shifts with the sector trends.
It is interesting to note that the fund used the drop in oil prices to increase positions in the energy sector, adding 1% to Schlumberger Limited (NYSE: SLB), boosting its allocation to 1.9% and increasing its allocation in Chevron Corporation (NYSE: CVX) by 1 to 1.9%. The fund initiated a new position in Visa, Inc. (NYSE: V) to 1.9% of total assets. While the fund has been trimming down exposure in finance and health technology, it has been maintaining a stay-the-course stance with technology services, indicating a risk-on approach in 2016 for that sector while maintaining a conservative stance overall, evidenced by swapping down Apple shares and raising stakes in the more conservative General Electric shares.
By scaling down investment in the top two sectors of finance and health technology, the fund missed out on the initial bounce in 2016. The added investment in technology services helped performance but didn't manage to offset the potential gains from the rally in the largest holdings. This conservative approach should help offset the damage in down markets, but it makes gains harder in surging markets. The YTD performance of the fund is -4.13% compared to the Standard and Poor's 500 Index (S&P 500) of negative 0.56%, as of Mar. 11, 2016.