Fidelity Magellan History
Fidelity Magellan is among the world's largest and most well-known mutual funds. Like other mutual funds, Magellan allows investors to spread their money across a variety of investment vehicles, including stocks, bonds and money-market opportunities. By diversifying an investment this way, the level of risk is minimized. The Fidelity Magellan Fund is managed by the Fidelity Investment Group.
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Fidelity Investments Group
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The Fidelity Fund was started in 1930, just as the Great Depression was beginning. Despite the tough economic conditions, the fund had $3 million in assets by 1946. That year, Fidelity was purchased by Edward C. Johnson, a lawyer from Massachusetts. Johnson set up Fidelity Management to oversee the fund, and this company eventually became the Fidelity Investment Group.
From the beginning, Johnson focused on aggressive growth, investing in vehicles that were considered riskier and more speculative than those in many other funds. His strategy paid off, and by the early 1960s, the company was managing more than $2 billion in assets.
Magellan Fund
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In 1963, Fidelity added the Magellan Fund, and it was managed and directed by Edward Johnson and then his son Ned, who joined the company in 1965. The first two years after its introduction, Magellan was available for public investment. However, Fidelity closed Magellan to new investors from 1965-1981, though employees were still permitted to invest in the fund. Under the favorable economic climate of the 1960s, the Magellan Fund grew at record rates, with returns of 115 percent in 1965 and more than 100 percent in 1969.
In the early 1970s, however, the fund shrank in correlation with the tough economy, posting losses of 15 percent to 42 percent each year between 1970 and 1974. In 1976, Edward Johnson retired from the company, and Ned Johnson was elected CEO. The Magellan Fund the two had managed had grown to more than $20 million in assets, while Fidelity as a whole was worth $3 billion. -
Peter Lynch
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In 1977, management of the Magellan Fund was turned over to a young analyst named Peter Lynch. Lynch took Magellan from $20 million in assets to more than $14 billion when he stepped down in 1990. He based his investment picks on a philosophy he called "buy what you know." Rather than investing in the speculative vehicles preferred by the Johnsons, Lynch chose stocks and funds that he and his fellow employees used in everyday life, such as the Gap and McDonald's. Using this strategy, Lynch helped Magellan produce an average return of 29 percent each year for 14 years, beating the S&P 500 for 11 of those years. This performance made Lynch a legend in the investment industry.
Late 20th Century
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Like many funds, Magellan was hit hard by the stock market crash of October 1987. To remain stable, Fidelity sold off a large number of assets, bringing total company funds down to $77 billion from $85 billion. This loss spurred CEO Ned Johnson to streamline operations and cut staff by a third, helping Fidelity reach more than $119 billion in assets by 1990, the same year Peter Lynch resigned.
After Lynch, Magellan was led by Morris Smith, who took the fund to $20 billion in just two years. Smith stepped down in 1992 and was replaced by Jeffrey Vinik, who brought Magellan up to $50 billion in just four years. Despite this success, Vinik was heavily criticized for moving a large percentage of funds into the bond market, rather than keeping them in the stock market.
1997 and Beyone
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In 1997, Vinik was replaced by Bob Stansky, who quickly redirected investments out of the bond market.That same year, Magellan was closed to new investors because of concerns that the fund had grown too large and would suffer poor performance if it continued to grow. By 2000, Magellan was the largest mutual fund in the world, with assets of more than $100 billion.
Throughout the early 21st century, Magellan suffered a series of losses attributed to currency devaluations and risky investments. By 2007, the fund was back to $52 billion, and it was reopened to new investors in January 2008.
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