New leadership at Magellan

Lange must stem withdrawals by advisers

November 16, 2005|By THE BOSTON GLOBE

BOSTON --Designing sports cars sounds like a dream job. But as a young engineer at Chevrolet, Harry W. Lange had other long-term goals. when he borrowed Corvette prototypes on weekends, he drove them to a brokerage office to check his investments and share prices.

"My passion was always the stock market," Lange said.

Now that passion will be tested. After leaving Chevrolet for business school and a financial career, Lange was named head of Fidelity Investments' Magellan mutual fund last month.

The move puts the 53-year-old Lange behind the wheel of the Boston company's best-known product - and in many ways its most challenged.

Whereas Magellan once racked up record returns, Lange's predecessor Robert Stansky shifted its focus to larger companies and saw the fund's performance dip below benchmark indexes such as the Standard & Poor's 500 index.

Meanwhile, Lange posted stronger returns running Fidelity's smaller, more aggressive Capital Appreciation fund. In his new job, Lange must persuade thousands of skeptical financial advisers to stop pulling money out of Magellan, once the world's largest fund but now not even the largest fund at Fidelity. It has $50.1 billion in assets today, less than half the approximately $110 billion it boasted at its peak.

Some, such as Mike Scarborough, an investment adviser in Annapolis, say they've stopped advising individuals to put money into Magellan because of what Scarborough calls "style drift," shifts away from the investment style outlined in its prospectus. Magellan "always makes me nervous because it's just a beast, it's hard to manage," Scarborough said.

Though the fund is closed to new investors, those who own shares or participate in a retirement plan that offers Magellan as an investment option can buy more.

Jim Lowell, editor of the newsletter Fidelity Investor, said he expects that in order to improve returns, Lange will invest in a portfolio that is riskier as well as more aggressive, just as he did running Capital Appreciation. That means stocks in the portfolio would probably be more volatile than the Standard & Poor's 500 index, which could yield greater returns if the index rises but greater losses if it falls.

Lange said he's prepared to assume "reasonable, measured levels of risk" as a manager and noted that the Capital Appreciation fund beat the S&P 500 in each of the past four years. He said he's not ready to talk about strategy changes for Magellan. But he outlined some ambitious tactics during an interview in his office, crammed with papers and his own 6-foot 5-inch frame.

Notably, Lange mentioned making more use of Fidelity's growing staff of analysts to invest in a broader range of companies - Magellan might wind up holding shares of perhaps 800 companies, he said, up from around 200 today. That would fit what others say is Lange's central strength, getting to know many companies inside and out. "He's a real stock-picker," said colleague William Ebsworth, executive vice president of Fidelity's new institutional retirement services organization.

To learn about potential investments, Lange said, he tries to learn plenty of "soft" information, such as whether a firm's bulletin boards are covered with softball-league standings or gripes. "I think managements get so good at saying what we want to hear that whenever they have conference calls or conversations they all say the same thing," he said.

Lange said he also listens to 200 voicemail pitches a day from stock analysts inside and outside Fidelity. Lange said he prefers that method to e-mail because the nuance in voices is just as important as financial facts, which are so freely available.

Lange, an alumnus of Harvard Business School, was hired by Fidelity in 1987, when it needed a specialist in Tokyo. He arrived to watch the Japanese stock market soar, then plunge, an experience that influenced his thinking when he sold technology stocks in 2000 before the bubble burst.

"It was the same dynamic," Lange said of the later period. "People started thinking of different ways of valuing things. I saw exactly the same thing in Japan."

Later, as Fidelity's chief technology analyst, Lange was known for contrarian bets. Most famously, he urged Fidelity fund managers to buy up IBM Corp. just as other investors were pulling back. Lange said he just spoke with more IBM customers and found them planning to buy 10 percent fewer mainframes, not the 75 percent drop others forecast. Lange's bets paid off as IBM shares soared.

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