Fund-amentals: Is Fidelity overstretching Feingold?

NEW YORK (Reuters) - Jeffrey Feingold's workload at Fidelity Investments has exploded, leading some fund analysts to say he's being stretched too thin.

Feingold was managing three Fidelity mutual funds with $1.76 billion of assets when he was named this week to replace Harry Lange at the top of the $17.4 billion Magellan Fund. Magellan was launched in 1963 by fabled manager Peter Lynch and held more than $100 billion in assets at its peak.

Magellan under Lange over the last five years has lost an average of 2.1 percent annually, trailing 87 percent of peer funds, according to Lipper.

Feingold, 40, joined Fidelity in 1997 as an analyst and has built a solid record managing Fidelity's $1 billion Trend Fund, since 2007. It rose an average of 6.2 percent annually over the past three years, outperforming 81 percent of similar funds, according to Lipper.

He will continue to run Trend as well as the $51.6 million Fidelity Large Cap Growth Fund, the $24.5 million Fidelity Advisor Strategic Growth Fund and the $33 million Fidelity VIP Growth Stock Portfolio, a subaccount of the Trend Fund. Each has posted steady returns in the past three years.

TOO MUCH TO MANAGE?

Some academics and analysts are questioning whether Feingold can continue his handsome performance record with a roughly 10-fold rise in assets under his management. For a start, he has a lot of homework to do since Magellan holds 170 stocks that are not in his other funds' portfolios, according to Lipper.

"Fidelity will say that the firm has analysts who cover those stocks, but those folks are going to go into Feingold's office saying why they like their stocks," said John Bonnanzio, editor of an independent newsletter for Fidelity investors. "It's up to him to know the stocks well enough to decide if they stay in the fund."

Fidelity says "capacity issues" are not a concern. Feingold's existing funds "fit with Magellan's capital appreciation investment objective and flexible investment strategy," said company spokesman Vincent Loporchio.

To be sure, Feingold's existing portfolios have about a 95 percent overlap with each other, meaning that adding Magellan may not be a big stretch, said Christopher Davis, a Morningstar Inc. analyst. The top holdings at each of the funds he currently manages, for example, include Apple Inc and Google.

Magellan seeks to beat the large-cap stocks in the S&P 500 Index while Trend uses the Russell 1000 Growth Index as its benchmark. Davis said the growth stocks they hold may become more duplicative under Feingold.

Feingold told Davis on Wednesday that Magellan will take on a less international tilt going forward, in line with the Trend Fund that has 10.32 percent of investments in stocks outside the U.S. Magellan has 22.3 percent of its portfolio in international holdings, according to Morningstar.

SWING CHALLENGE

Managing funds with similar strategies but different securities, however, creates challenges when there are big swings in the market, said Wally Weitz, founder of the $4 billion Weitz Funds.

"If all hell breaks loose, you need to be able to focus and make quick decisions," said Weitz, who sole-manages two funds and co-manages another pair. "Managing multiple portfolios can be an issue."

To be sure, Fidelity boasts an army of analysts to aid its fund managers, Weitz noted. Fidelity employs 330 analysts, and another 150 at its Fidelity Worldwide Investment affiliate who are available to domestic U.S. managers, a spokeswoman said.

Academic studies have repeatedly shown that returns diminish as fund assets grow, which could be an issue if Feingold's funds grow more homogenous.

The average return on small funds--the bottom quintile by assets--was 1.17 percent between 1986 and 2002, compared with an average return of 0.65 percent for the top quintile, according to a 2009 study of 3,136 fund managers surveyed by Russ Wermers, an associate professor of finance at the University of Maryland's Smith School of Business.

"More talented managers are running larger funds," Wermers said, but "talented managers suffer when they go to larger pools of assets."

TOUGH SELL

Nevertheless, Fidelity's move to put in Feingold for Lange is being applauded by some analysts who were lamenting the steady flow of redemptions at Magellan and some other poorly performing funds. Investors withdrew $7.6 billion from Fidelity funds in August, representing 23 percent of total mutual fund industry withdrawals. It was Fidelity's worst withdrawal period since October 2008, according to Morningstar.

Davis said investors in Feingold's current funds would be the losers if Fidelity had decided that he should focus solely on Magellan.

Even with the Feingold imprimatur, Magellan will remain a hard sell through advisers or direct sales, said Jim Lowell, editor of Fidelity Investor, an independent newsletter.

"Financial advisers can invest in Trend and get the same good manager without having to explain why they are putting their clients in an underperforming product," Lowell said.

Fidelity spokesman Loporchio said Trend and Magellan will remain distinct because of their different benchmarks.

(Reporting by Jessica Toonkel; Editing by Jed Horowitz and Walden Siew)