The move to fee-only investing is growing. While investors don’t always use that approach, it’s currently at 36.8% of the U.S. population, according to a May 1, 2019 survey of 11,000 households conducted by Yardeni Research. It’s not without a few challenges. Making smart investment decisions in the era of tech IPOs has been hard enough, let alone when Robo-Advisors are being built to perform the same job.
I had the opportunity to observe two of our Dimensional Fund Advisors financial advisors – one of whom is former DFA’s Chief Investment Officer and founder of DFA Fund Advisors – at this year’s FFMA Fall Conference in Denver. During my research, I learned a bit about one of our largest client pools, Fidelity Magellan Fund, and also one of the things that has made the fund unique.
Most people remember that famous performance from almost 20 years ago. On December 31, 1990, Fidelity Magellan posted a performance of 95.7% that year, which means they outperformed the S&P 500 by about 15 percentage points a year. And, that was only the peak! Over the following ten years, the fund averaged 31.5% annual returns. Over the next nine years, it averaged 15.2%.
Investors can measure Fidelity Magellan’s historical performance with great interest, but that’s not the complete story. At around $27 billion, it’s one of the largest and most popular funds in the world. Which makes the choice to have the fund be the property of Fidelity interesting. If you are a Seeking Alpha readership, this could mean you have access to some of the best investors in the world, which is always something to notice and read. So, what is Fidelity Magellan?
For several years, Fidelity Magellan Fund was part of one of the largest brokerages, DFA. DFA was acquired by Fidelity Advisors for $625 million in 2017. This puts Fidelity in the middle of one of the oldest competitive markets in the financial services industry – asset management. But, as my DFA Financial Advisor explained, it isn’t always about the money.
Fidelity Magellan Fund sold the largest stake in DFA from their mutual fund subsidiary. However, once the deal was made, the SEC was able to stay on board for the next phase, which was transitioning the existing managers of the fund to become DFA’s “investor-side assets.” While they provided up-to-date performance information about each fund, not much else is required or expected of the fund’s manager.
What did they do with their information? They got out of the way of the fund, allowing them to focus on running the asset management business, and never again manage other people’s money.
So, when we talk about Magellan as an ETF, we’re trying to understand what the fund does for Fidelity, and how it may be brought to even more investors.