October 31, 2008 / 2:50 AM / 11 years ago

Fidelity's Magellan fund buys big banks in September

BOSTON (Reuters) - Fidelity Investments’ flagship Magellan fund sharply raised its holdings of Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N) in September, as it moved into bigger U.S. banks amid the worsening credit crisis.

The $28.3 billion fund, managed by Harry Lange, also sold out of positions in Merrill Lynch & Co MER.N, Morgan Stanley (MS.N) and Wachovia Corp WB.N in September and slashed holdings of Goldman Sachs Group Inc (GS.N), according to data posted on Fidelity’s website on Thursday.

Magellan also slashed its holdings of insurer American International Group Inc (AIG.N) at the end of September from the prior month. AIG’s shares sank in September as the U.S. government took it over to prevent its failure.

Privately owned Fidelity is the world’s biggest mutual fund company and manages about $1.5 trillion in assets, so portfolio changes by its key managers are closely watched. Fidelity declined to comment on changes in funds’ holdings.

Magellan was once ranked America’s largest stock fund with more than $100 billion in assets. It was closed to new investors in 1997 but reopened in January this year. Its assets and performance have declined since then.

Lange raised his stake in Bank of America to $834 million from just $18,809 a month earlier, making the U.S. bank his sixth-biggest holding.

His stake in JPMorgan increased ninefold to $523 million, and made the largest U.S. bank by market value Magellan’s ninth-largest holding. Magellan also reported a new $225 million stake in Wells Fargo & Co (WFC.N).

Bank of America, JPMorgan and Wells Fargo have fared better than some rivals in handling the credit crisis, and are making large acquisitions to consolidate their positions. Bank of America shares rose 12.4 percent in September, JPMorgan gained 21.3 percent and Wells Fargo jumped 24 percent.

Magellan's performance has floundered, partly because of the financial sector bets. The fund is down 49.2 percent so far this year compared with a 35.5 percent negative return of the S&P 500 index .SPX, according to Lipper data.

Bank of America is buying Merrill, JPMorgan bought the banking operations of bankrupt Washington Mutual Inc WAMUQ.PK and Wells Fargo is taking over Wachovia. The consolidation comes as the U.S. finance sector faces its most turbulent period since the Great Depression.

At the end of August, Magellan held stakes of $470 million in Morgan Stanley stock, $404 million in Wachovia and $253 million in Merrill. The fund sliced Goldman holdings to $40 million from $492 million.

Its AIG stake tumbled to $56 million from $703 million, although much of that decline stemmed from an 85 percent drop in AIG’s share price.

The government last month obtained a nearly 80 percent stake in AIG, in exchange for an emergency $85 billion credit line, which was supplemented with a $38 billion loan facility.

Finnish mobile phone maker Nokia Corp NOK1V.HE and U.S. specialty glass maker Corning Inc (GLW.N) remained Magellan’s top two holdings, the data showed.

Editing by Anshuman Daga

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