Fidelity Launches Magellan ETF

The fund, once the largest in the world, gets its ETF counterpart, but is it worth investing in?
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Three decades ago, the Fidelity Magellan Fund (FMAGX) was the biggest mutual fund in the universe. On the heels of elite performance from the legendary Peter Lynch (and continued outperformance from some of Lynch's successors, although not nearly as impressive), the fund grew to more than $100 billion in assets by the end of 1999, an unheard of total at the time.

Magellan turned into an underperformer in the years following the tech bubble peak and is now largely an afterthought in the fund marketplace. With the emergence of ETFs and ultra-low cost index funds, Magellan's actively-managed mutual fund structure is mostly getting left behind. Still, at around $22 billion in assets, it's not a non-factor and the name recognition alone creates a lot of brand value.

That's why last week's launch of the Fidelity Magellan ETF (FMAG) is important. New ETFs are getting launched all the time with the vast majority being brand new products and strategies. We're still in the very early stages of fund companies taking existing well-known mutual funds and transforming them into an ETF product. We've seen T. Rowe Price do it with a couple of their active funds, but Fidelity joining in is the biggest wave in the trend to date.

Fidelity Magellan Fund vs. Fidelity Magellan ETF

From a fundamental strategy standpoint, there's not much here that's different. Both will be actively-managed, categorized as large-cap growth and hold around 70-75 names. The biggest difference will be with expenses. FMAGX comes with an expense ratio of 0.77%, but FMAG will be cheaper at 0.59%.

One notable similarity will be the two products' lack of transparency. FMAGX, like most mutual funds, only disclose their holdings on a monthly or quarterly basis. That hasn't been the case for many ETFs. Since they're tied to an index, they tend to publish their holdings on a daily basis. Active managers don't necessarily like to give up their "secret sauce" and only disclose holdings when they're legally required to (the ARK ETFs are the notable exception here as they're actively-managed but disclose holdings on a daily basis).FMAG will fall under that "active non-transparent" umbrella.

Conclusion

Despite the market landing in Magellan's large-cap growth wheelhouse over the past few years, the fund has largely failed to capitalize. According to Morningstar, Magellan falls into the bottom quarter of its peer group across all time frames.

The launch of a Fidelity Magellan ETF will capitalize on the fund's name recognition, but its track record shouldn't really excite anybody. The halcyon days of Peter Lynch are long in the past and Magellan's current manager, Sammy Simnegar, has only been steering the ship for two years, not long enough to develop any kind of real track record with the fund.

However, he also manages the Fidelity International Capital Appreciation Fund since the beginning of 2008 and that fund has developed a pretty good track record, so there's some hope he could do the same thing with Magellan.

It's probably also time to keep a watch for the launch of a Fidelity Contrafund ETF as well.

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