FIDELITY’S BACK, THANK MAGELLAN

1998 was the year Fidelity Investments – led by its colossal Magellan Fund – bounced back.

For the first time in years, many of Fidelity’s biggest mutual funds are putting up impressive numbers. The $34.7 billion Contrafund, for example, posted a 17.22% return for the 11 months ended Nov. 30, compared to its peer group average of 13.32%. The $10.5 billion Growth Company Fund returned 17.09%, vs. 13.32% for its peers.

Magellan, the mother of all funds with $76.3 billion, posted a 21.90% return under manager Robert Stansky, narrowly beating the 21.57% of the Standard & Poor’s 500 stock index. Magellan hadn’t beaten the formidable benchmark in four years.

The improved performance amounts to nothing less than a turnaround for Boston-based Fidelity. Thanks to unchecked asset growth and risky sector bets that didn’t pan out, many of its biggest funds turned in dismal returns in 1995 and 1996. It didn’t take long before many top fund managers jumped ship and for the firm to be labeled a victim of its own success.

But Fidelity fixed what was broken. Recognizing that some of its stock funds were too big to maneuver nimbly through the market, Fidelity closed big funds, including Magellan and Contrafund, to new retail investors and ordered fund managers to focus less on buying undervalued companies and instead to look for those with consistent earnings growth. This has led many Fidelity funds into large-company stocks, such as Microsoft and IBM, which have been leading the market. And Fidelity has embarked on one of its most aggressive branding campaigns ever, featuring TV ads with former Magellan manager Peter Lynch and comics like Lily Tomlin and Don Rickles.

Fidelity isn’t half the mutual fund master it was in the late 1980s and early 1990s. Its downslide appears over, though, and it’s back in action.