Fidelity Investment’s flagship Magellan fund has helped investors reach their financial goals for decades. That time-tested, actively managed approach is now available as an exchange traded fund, offering investors Fidelity’s actively managed expertise in a flexible, tax-efficient, low-cost and easily accessible investment vehicle.
In the upcoming webcast, The Potential for Outperformance: Fidelity Magellan ETF, Fidelity Investments’ portfolio manager, Sammy Simnegar, and senior vice president, sector and ETF sales manager, Richard Koerner, will discuss where active management can fit in today’s equity markets, with a deep dive into the storied Magellan methodology.
Specifically, the Fidelity Magellan ETF (FMAG) is a cheap and efficient way to access Fidelity’s storied flagship fund strategy: the actively managed Fidelity® Magellan® Fund (FMAGX), which has been around since May 1963. The strategy normally invests in equity securities, holding “growth” stocks, “value” stocks, or both from domestic and foreign issuers. The ETF’s active managers utilize fundamental analysis of factors such as each issuer’s financial condition and industry position, and market and economic conditions to select investments.
FMAG is classified as a semi-transparent ETF, so the holdings are not disclosed to investors daily. The non-transparent nature helps the fund managers maintain their secret sauce without being negatively affected by frontrunners.
Fidelity’s active equity ETF model employs an innovative “tracking basket” methodology, which maintains the benefits of the ETF structure, provides information to market participants to promote efficient trading of shares, and preserves the ability to add value through active management.
Fidelity will do this via a “proxy portfolio” that includes actual stock holdings and ETFs with holdings similar to what Magellan holds. This “semi-transparent” wrapper allows Fidelity to avoid showing all its cards while remaining compliant with SEC disclosure rules.
The ETF investment vehicle is seen as a more tax-efficient, easily accessible, and cheaper alternative to the traditional Act 40 mutual fund. This is also part of the ongoing adaptation in the fund industry as more mutual funds seek the benefits of the ETF fund wrapper. There is also the risk of cannibalization in that the move could potentially attract away from existing mutual fund shareholders with a lower-cost ETF.
Conversely, investors familiar with the Magellan mutual fund might not be comfortable with an ETF, while investors who have never heard of Magellan might not buy that ETF, either. There’s risk in doing nothing at all — if an investor is already looking to migrate from mutual funds to ETFs, and Fidelity doesn’t offer similar lines of products at the ETF level, that investor might move money into another provider’s fund.
Financial advisors who are interested in learning more about Fidelity’s Magellan fund strategy can register for the Friday, October 8 webcast here.