Individual investors have shown an appetite to get back into stocks recently, and
is setting the table.
Effective at the close today, the mutual fund giant dropped the 3% front-end load, or sales charge, on five funds with combined assets of more than $100 billion -- including the flagship
Magellan fund and the
Low-Priced Stock fund. By removing the loads, the Boston-based giant's diversified stock funds are now no-load funds. However, Fidelity's 41 "Select Portfolio" sector funds still tack on the 3% front-end load.
Among the five funds, the
New Millennium and Magellan funds are closed to new investors -- and there are no plans to reopen them, the company said in its release. The change will only affect existing investors who wish to buy additional shares. The three other funds -- the small-cap Low-Priced Stock,
Contrafund II -- remain open.
"Today's move gives investors who might have ruled out these funds due to their loads a reason to consider them," said John Brockelman, spokesman for Fidelity. Brockelman said the firm has no plans to remove the loads from the sector funds.
"Whenever Fidelity makes a move you have to ask, 'Why now?'" said Jim Lowell, editor of the
Fidelity Investor newsletter. "In a bear market, it's hard to sell even a top-performing fund. They also had a good object lesson when they made the switch with Contrafund."
Fidelity temporarily removed the front-end load Contrafund in February -- the no-load period was set to end June 30. Within six weeks, the fund went from negative inflows to positive inflows, said Lowell, who calls this a good move for Fidelity. "Writ large, they can put the no-load neon sign up in front of their domicile to bring in new business."
The headline grabber among the newly load-free funds is flagship Magellan -- it was once helmed by near-deity Peter Lynch, and with $61.17 billion in assets, it is the second-largest equity fund in America after the
Vanguard 500 index fund. However, the giant fund hasn't knocked the cover off the ball in recent years. Its 10-year average annual return of 8.74% through May 31 trails the 9.94% return of the
and bests 53% of its peers -- not exactly offsetting the 3% load. The massive fund's top 10 holdings reads much like the S&P 500's largest components --
and so on -- making charges that Magellan is merely an expensive index fund not entirely without merit.
Though Bob Stansky, skipper since 1996, has put up benchmark-beating numbers over the past five years, "this news doesn't change my opinion on the fund," said Lowell, who rates Magellan a hold.
The best open-for-new-business fund on the no-load roster -- and arguably the best fund in Fidelity's stable of 334 funds -- is the Low-Priced Stock fund. Skipper Joel Tillinghast, Morningstar's Domestic Equity Manager of the Year for 2002, has compiled an outstanding record since 1989. The fund's 10-year average annual return of 14.73% a year trounces the benchmark Russell 2000's 8.12% annual return over the past 10 years. The fund's 10-year record ranks No. 3 out of 139 small-cap funds, according to Lipper.
One potential fly in the ointment at Low-Priced Stock: Can it take on much more money? At $17.15 billion in assets, it is enormous for a small-cap-oriented offering. So far, Tillinghast has managed the money without a problem, in part by reaching into mid-cap and large-cap stocks, such as
, that trade under $35 (hence the low-priced moniker).
"They didn't have to take the 3% front-end load off Low-Priced Stock," said Lowell, who noted that the fund took in $3.9 billion in 2002 and is having another banner year on inflows. "It's just a case of Fidelity doing the best thing for itself and shareholders."
Lowell cautions that investors shouldn't hesitate if they want to tap into Tillinghast's stock-picking mojo. Low-Priced Stock closed three times in the past after taking in heaps of new cash. "This fund may close again, so don't hesitate," Lowell said.
The Contrafund and its sibling Contrafund II have posted records that may attract new money, as well. The Contrafund, run by William Danoff since 1990, invests in large-cap companies that look undervalued -- leading it to companies such as
. It's something of a "growth lite" fund, given its aversion to tech and other high-priced fare. The fund's long-term returns have been stellar -- the 10.86% average annual return through May 31 beats the 9.94% return of the S&P 500 and ranks it in the top 15% of its large-growth peers, according to Lipper. With $29.61 billion in assets, its one of the 10 largest funds in the U.S.
Its sequel, the $692 million Contrafund II, has shared a similar mandate -- to invest in companies whose value hasn't been fully recognized. But its DNA isn't quite the same. Among its biggest holdings are Microsoft -- putting the fund's tech weighting at 11.2%, which is down from 14.2% in October but above Contra I's 8.5% weighting. The fund's five-year average annual return of 4% through May 31 crushed the S&P 500's 1.08% average annual loss and ranks the fund in the top 9% of all large-cap growth funds, according to Lipper. Adam Hetnarski has managed the fund since February 2000.
The New Millennium fund, a $2.97 billion growth fund, is more than 50% mid-cap, but can scoop up large or small stocks it likes. While the recent returns have been choppy, the fund's 10-year average annual return of 17.25% ranks
among 62 capital appreciation funds tracked by Lipper. The fund's go-anywhere approach turns up mega caps such as
, mid-cap growers like
and tiny, wireless-equipment shop
While Fidelity's Brockelman said Fidelity has no plans to reopen New Millennium to new investors, Lowell, for one, hopes the firm reconsiders: "
SkipperNeal Miller has demonstrated he knows what to do with new money."
Meanwhile, Fidelity also launched three new funds to appeal to the value-oriented investor -- essentially one fund for three different distribution channels. Fidelity Blue Chip Value, Fidelity Advisor Value Leaders and Fidelity VIP Value Leaders Portfolio will hunt for blue-chip values, the firm said. All three will be managed by Brian Hogan. "These are our first, true non-structured, large-cap value funds," the growth-oriented firm noted in its release. Non-structured means that they don't have income requirements like the equity-income funds Fidelity offers.
The funds will use the Russell 1000 Value as a benchmark to compare performance. Hogan is a nine-year Fidelity veteran who most recently managed the U.S. stock portion of the Fidelity Worldwide fund.