Fidelity Repackaging Magellan As ETF

September 25, 2020

Fidelity filed to launch a nontransparent ETF version of its most famous mutual fund. The Fidelity Magellan ETF, like its big brother the Fidelity Magellan Fund (FMAGX), is a sort of go-anywhere equity fund that can invest in both growth and value stocks from domestic and foreign markets.

Twenty years ago, the Magellan Fund was the largest fund in the world with more than $100 billion in assets, with the Vanguard 500 mutual fund nipping at its heels (it later surpassed Magellan). Today, FMAGX has roughly $22 billion in assets with an expense ratio of 0.77%.  

It’s been around since 1963, but it was under fund manager Peter Lynch, the Magellan Fund’s manager from 1977 to 1990, that it became the best-performing mutual fund in the world. And Lynch became one of the most famous investors in the world.

The ETF will be co-managed by the mutual fund’s current manager, Sammy Simnegar, as well as Tim Gannon.

The Model

Fidelity’s model for active ETFs that don’t disclose their holdings on a daily basis includes a proxy portfolio that is publicly available on a daily basis along with the percentage by which it overlaps with the ETF’s actual portfolio.

What makes the Fidelity methods superior, according to Greg Friedman, head of ETF management and strategy at Fidelity Investments, is the fact that the firm uses ETFs in its proxy portfolio in addition to securities disclosed in the previous holdings report. The ETFs are selected based on their correlations with the undisclosed securities, liquidity and costs to create a close tracking differential to the actual portfolio.

Holdings are reported on a monthly basis with a 30-day lag, Friedman says, noting that this is Fidelity’s standard for disclosure on its mutual funds and the model can adapt to any firm’s established disclosure schedule. The model has been licensed to other firms including Goldman Sachs.

Currently there are more than a dozen of these nontransparent actively managed ETFs using various models trading on U.S. markets. For the most part, they have not seen the flood of assets predicted by many, but Fidelity could break that streak with its repackaging of the Magellan fund.

The filing also detailed plans for the Fidelity Growth Opportunities ETF, the Fidelity Real Estate Investment ETF and the Fidelity Small-Mid Cap Opportunities ETF. It did not include tickers or expense ratios, but the listing exchange is Cboe Global Markets, the parent company of ETF.com.

Contact Heather Bell at [email protected]

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