BOSTON — Although it is too early to tell whether their winning streaks will continue, Fidelity Magellan Fund and Janus Worldwide Fund — two large mutual funds that have struggled to beat their benchmarks of late — are off to decent starts in 2007.
Magellan owes some of its early progress to consumers’ appetite for flat-panel TVs. Corning (N.Y.) Inc., Magellan’s No. 2 holding as of Dec. 31, had gained 16.1% year-to-date through last Tuesday. Shares of Corning, which makes liquid-
crystal display glass sheets, have benefited, thanks in part to demand for LCD TVs.
“Corning makes glass, but it’s a play on [LCD] TVs,” said Dan Lefkovitz, a senior mutual fund analyst at Chicago-based Morningstar Inc.
Corning (GLW) along with Magellan’s biggest holding, Nokia Corp. (NOK) of Espoo, Finland — up 13.1% this year through last Tuesday — have helped the $45.2 billion fund return 5.15% year-to-date, according to Morningstar. That beat the 3.17% return of the Standard & Poor’s 500 stock index.
For the three-month period ended Tuesday, Magellan had gained 5.78%, putting it 1.06 percentage points ahead of the index. Still, the analyst cautioned against reading too much into early-year returns of the fund, run by Boston-based
Fidelity Investments.
“The problem with looking at this so early is that a day or two has a pretty big impact,” Mr. Lefkovitz said.
Magellan portfolio manager Harry Lange’s stock-picking strategy tends to work best when the market is strong, the analyst said. Mr. Lange, who took over the fund from previous manager Robert Stansky on Oct. 31, 2005, “was pretty far ahead” of the S&P 500 in the fourth quarter of 2005 and first quarter of 2006, Mr. Lefkovitz said.
The fund then lost ground when the market sold off in May, the analyst said. It ended the year with a 7.2% return that lagged the S&P 500 by 8.6 percentage points.
Although it still is too early to judge Mr. Lange’s performance on Magellan, one point does seem clear — Magellan, once seen as a closet index fund, no longer moves in lock step with the S&P 500, the analyst said.
“It’s going to be divergent both on the upside and the downside,” Mr. Lefkovitz said. “People who have suffered with this fund for years and years should give this guy a chance and see what he can do in a real sort of growth-led market, which we haven’t had yet since he took over.”
The Janus Worldwide Fund (JAWWX), managed by Jason Yee of Denver-based Janus
Capital Group Inc., also was beating its benchmark, the MSCI World Index, this year through Tuesday.
Unlike Magellan, which beat the S&P 500 in 2001 and 2005, the $4.5 billion Janus Worldwide Fund hasn’t beaten its benchmark in a calendar year since 1999, when it gained 64.4%. That beat the MSCI World Index by 39.4 percentage points.
This year through Tuesday, however, the fund had gained 5.31% to beat the MSCI World Index by 1.34 percentage points. That ranks the fund in the top 17% of world stock funds tracked by Morningstar.
Over the three-month period, the fund climbed 8.58%, beating its benchmark by 0.99 percentage points.
“I wouldn’t base too much on just a few months of performance, but I do think that in the case of Janus Worldwide that that fund was being rebuilt and started to turn around well before the performance started to show it,” said Karen Dolan, a Morningstar mutual fund analyst.
That is because Mr. Yee, who took over the fund in July 2004, has made changes “that from a fundamental perspective look very sound,” she said.
“When he first took over in ’04, he really sold down a lot of the emerging-markets exposure the fund had [and] a lot of the energy exposure that it had, because it simply didn’t fit with what he was looking for,” Ms. Dolan said.
Mr. Yee takes “a contrarian stance” toward investing, buying names such as Dell Inc. (DELL) and Expedia Inc. (EXPE) when they are out of favor, she said. Dell, a Round Rock, Texas-based computer maker, had lost 2.2% this year through Tuesday.
But Expedia, the world’s largest online travel agency, had gained 5.9% this year through Tuesday. The Bellevue, Wash.-based company also gained 23% in the three-month period ended Tuesday.
“Because [Mr. Yee] focuses on valuation, because he’s so contrarian, I really think the fund’s downside is pretty well protected,” Ms. Dolan said. “[For] shareholders who have stuck it out, I think now is not the time to call it quits.”
