Legendary Fund Signals Market Shift

10/04/2011 10:00 am EST

Focus: FUNDS

Jim Lowell

Partner & Chief Investment Officer, Adviser Investments

As double-dip concerns continue to rise, I’m keeping my eyes on the actual economic and earnings data for signs of uncomfortably slow growth turning into no growth, says Jim Lowell in Fidelity Investor.

This month, I want to note two signposts that meet at the crossroads of confidence and spending. Each is reflective of key drivers of economic activity—and to cut to the chase, both point toward growth.

First, August car sales countermand the abiding pessimism of no sales; both foreign and domestic sales presented ample evidence of buyers rather than window shoppers. Moreover, the types of vehicles being purchased en masse were bigger-ticket trucks and SUVs, as well as high-end luxury cars from BMW and Mercedes.

Low financing rates and the re-emergence of lending helped put the buying pedal to the sales of such metal and serves as a reminder of my view that investors need to focus on actual spending, not confidence reports, to get a real-world economic clue.

Second, a signpost I’ve noted before: rail shipments.

Rail shipments are one of my preferred bellwether indicators, not only of falling or rising demand for goods and services, but also for the manufacturing of such. According to a recent Bloomberg report, “The three largest US railroads haven’t given any indication of a sharp decline in demand similar to 2008 and 2009, when volumes fell as much as 24%.”

Of course, not seeing a dramatic decline wouldn’t be enough to ensure that slow growth hasn’t been derailed by no growth. But the report goes on to note that rail shipments are "the highest in almost three years."

The data is pulled from the Association of American Railroads, and represents “the bulk of materials for industrial production.” Rising shipments equate to an economy that may be slowing, but still growing.

In mid-September, we found out that Magellan (FMAGX) manager Harry Lange has stepped aside for Jeff Feingold, current manager of Trend (FTRNX).

Feingold’s focused approach on domestic multinationals (he has one of the lowest weightings in foreign stocks relative to his peers) follows a trend we’ve been on, and will re-position Magellan away from being an aggressive global growth fund to being a more risk-managed growth fund which can capitalize better on domestic and global trends.

The timing feels like a bullish call on domestic mega caps and a bearish one on the near-term prospects for international markets.

Lange’s long-term global growth investment discipline never got its market due. He was prone to the protracted downturn in the established foreign markets, and was never likely to be exposed to the riskier emerging-market ones.

I said at the end of last year that the writing was on Lange’s wall, and that if the established foreign markets didn’t turn around he’d likely be out of a job by year-end. He’s out of one now. His performance since he took over the fund back in October 2005 is -0.1% vs. 14.1% for the S&P 500 and -2.8% for the EAFE (through August 31).

Feingold’s discipline, record, ranking, and approach is well known to me. I prefer Mega-Cap Stock (FGRTX) to Trend or Magellan, but I do think if current investors in Magellan have significant taxable gains, they will fare well sticking with the fund.

Feingold’s focus on domestic multinationals will lower Magellan’s overall risk profile and yet still be better able to engage with the global markets (including the emerging-market consumer base). I think a downgrade of Magellan from Buy to Hold makes sense from a fund-choice as opposed to a manager-choice perspective.

Also, Alexander Zavratsky is now portfolio manager of Fidelity International Value Fund (FIVLX) and Series International Value Fund (FFVNX), and co-manager of Fidelity Total International Equity Fund (FTIEX) with retail and Advisor share classes, succeeding George W. Stairs. There is no change in the rating based on this change.

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