The man steering Fidelity Magellan back on course

With over $14 billion in assets, Fidelity Magellan is a fairly large, widely owned portfolio. But in its heyday, Magellan was quite simply Wall Street's best brand -- a living advertisement for the notion that a gifted fund manager can consistently beat the market.

Peter Lynch, who ran the fund until 1990, earned an annualized return of 29% over his 13-year tenure. Subsequent managers failed to repeat his success, and under the last one, Harry Lange, performance was sometimes dismal.

Can new manager Jeffrey Feingold turn this ship around?
How the giant fell
The history of Magellan (FMAGX) offers a lesson: A fund's past successes can be a burden on current owners.
Lynch's legacy kept the fund popular through the 1990s, and it ultimately hit a then-record $100 billion. Once a fund is that big, however, it can get trapped in a box.
The key to Lynch's success, says mutual fund consultant Geoff Bobroff, was that he could bet big on just about anything. A giant fund, by contrast, can have a hard time finding enough winners on which to spread its billions.
Related: Invest your way to $1 million
One Magellan manager, Robert Stansky, made the fund more like the S&P 500. Lange made big strategic shifts, such as a badly timed bet on financial and foreign stocks coming into 2008. By 2011, as investors left, size wasn't such a problem.
So far, so good
Fund manager Feingold beat the majority of funds in Magellan's large-growth category in 2012, his first full year on the job, and he's so far on track to win again this year. This builds on Feingold's solid record running Fidelity Trend (FTRNX), another fund that focuses on blue chips with high earnings growth rates and comparatively steep valuations.

 

How to make a million dollars

  Feingold says he finds growth in three "buckets." Fast growth, like recent top holding Google (GOOG, Fortune 500); pretty good growth with a strong financial position, such as Coca-Cola (KO, Fortune 500) (KO); and cheap stocks that are improving.
That last category has led Feingold to hold more than his rivals in financial stocks. "They've gone from bad to less bad," he says. In this case, the timing worked: Financials are up over 38% in the past year.
Looking for small edges
Magellan's smaller size gives it more flexibility now -- the portfolio even has 5% in small stock. Still, under Feingold, "It's a fund that isn't so different from its benchmark," says fund researcher Russel Kinnel of Morningstar.
Think of Magellan as a core stock fund with a growth tilt. Feingold has held less in tech and more in financials than the typical growth fund. So Magellan may not outperfom as much when the market favors classic growth stocks.
Related: Want $1 million? Protect your portfolio
That raises the question: Should you pay the added expenses for a portfolio not wildly different from an index fund? It helps that Magellan's expenses are just 0.46% a year. But if the fund really comes back, it's allowed to charge a performance bonus that could add a bit to its cost. 

 

 Nnamdi Armstrong
C.E.O 

Sloane International Investments Ltd

+23408162319833

China set to pass U.S. as top oil importer

The rapid redrawing of the world's energy map is about to hit another milestone, with China overtaking the U.S. as the biggest importer of oil.

The Energy Information Agency expects China's monthly net oil imports to exceed those of the U.S. by October, and by next year on an annual basis.

"The imminent emergence of China as the world's largest net oil importer has been driven by steady growth in Chinese demand, increased oil production in the United States, and a flat level of demand for oil in the U.S. market," the EIA said in its latest outlook.
A boom in U.S. oil production is being driven by new technologies, such as hydraulic fracturing -- or fracking -- which are opening up huge reserves for development.
The Paris-based International Energy Agency has forecast that the U.S. could become energy independent by 2030, and the world's biggest producer seven years from now.
Related: U.S. oil boom causing energy upheaval
The U.S. oil boom is boosting the nation's level of reserves, reshaping global oil trade flows and driving up demand and salaries for experienced engineers.
And while China's breathtaking pace of economic expansion has slowed, its demand for oil to fuel a massive manufacturing sector is set to continue growing at a much faster pace than it can ramp up its own production.
Related: China, OPEC and the future of energy
China demand for liquid fuels will have grown by 13% between 2011 and 2014 to more than 11 million barrels per day, while its production will increase by just 6%, according to the U.S. EIA.

 

Fracking fight hits England

Over the same period, U.S. total annual oil production will have risen by 28% to nearly 13 million barrels per day, as demand hovers around 18.7 million, well below the 2005 peak of 20.8 million, the EIA said.

Nnamdi Armstrong
C.E.O 

Sloane International Investments Ltd

+23408162319833

Apple's store headache

Apple Stores are one of Steve Jobs' greatest legacies, but the retail business has been a headache for Apple lately.

The latest migraine: The friendly, t-shirt wearing retail workers helping you pick out your latest iPhone filed a class-action lawsuit late last month, suing the tech giant over unpaid wages.

Two former workers claim that they were required to wait in line for a manager to check their bags for stolen goods before leaving the store -- but after clocking out. Some days the wait was longer than five or ten minutes, which added up to $1,500 in unpaid wages per year for one worker, according to the lawsuit. Apple (AAPL, Fortune 500) Store employees typically make between $12 and $18 per hour.
That's small change for a company that has brought in more than $79 billion in sales so far this year. The lawsuit could damage Apple's sterling reputation, said Robert Passikoff, president of brand research consultancy Brand Keys.
"It begins to raise questions. And you don't want a question mark next to your brand," said Passikoff. "That jars people."
Apple did not respond to a request for comment.
Related story: An Apple store is worth as much as the White House
But Apple has been down this road before. A year ago this week, Apple began laying off recent Apple Store hires to make its retail operation leaner. The problem: Apple has been praised for its ubiquitous help, and the cuts were made smack in the middle of the busy back-to-school season.
Apple later reversed course and publicly admitted the layoffs were a "mistake." The company fired John Browett, its retail chief, two months later.
Sales at Apple Stores have also begun to sink, and visits are down. This past quarter, Apple Stores averaged 16,000 visitors per store each week, down from 17,000 during the same period a year earlier.
That's not a shock, considering Apple released a new iPad in March 2012 -- and hasn't updated it since. But here's a worrisome number: Per-store revenue fell 9% year-over-year, while Apple's overall sales were up 1%.
Meanwhile, AT&T (T, Fortune 500), Microsoft (MSFT, Fortune 500) and many others have attempted to replicate Apple's retail model. Though they've had varying degrees of success, the seamless shopping experience is no longer unique to Apple.
The Apple Store's success isn't something the company wants to mess with. Apple Stores are by far the most valuable retail spaces in the world measured by sales per square feet, according to industry publication RetailSails. Last year, they outpaced Tiffany's (TIF) in that measure by 40%.
But if Apple were to create a new vision for the Apple Store, it's not clear where that would come from. For now, the Apple Store is leaderless.
Apple has yet to find a permanent replacement for Browett, who only lasted fewer than 10 months in the job. He replaced Ron Johnson, who is largely credited with developing Apple's retail strategy. Johnson left for J.C. Penney (JCP, Fortune 500) in 2011 ... though he's currently available.

 

Nnamdi Armstrong

C.E.O 

Sloane International Investments Ltd

+23408162319833

Chinese producers benefit amid New Zealand milk scare

Chinese dairy companies are basking in a rare moment. This time, they're not the ones under scrutiny for food safety -- it's a New Zealand firm.

Over the weekend, the world's largest dairy exporter, Fonterra, revealed that some of its products were contaminated with a bacteria that could cause botulism. The bacteria was found in whey protein, produced by the New Zealand company, for sale to other companies for use in consumer products.

Now, China has suspended imports of some whey protein and milk-based powder sourced from Fonterra.
This isn't great news for New Zealand, as China is its top trading partner. But it's turning out to be a bit of a boon for some Chinese dairy and infant formula companies.
Guangzhou-based infant formula maker Biostime and China Modern Dairy both surged by 9.8% in Hong Kong trading. Yashili International closed up 2.5%. China Mengniu Dairy closed down 1.4%, erasing earlier gains.
At the same time, Want Want China, a company that sources most of its raw milk from Fonterra, tumbled 3.2%.
China has pledged to boost food safety measures after tainted baby formula killed at least six infants and sickened another 300,000 in 2008. Nearly all major Chinese makers of milk powder were found to be contaminated with the toxic chemical melamine. The additive caused the formula to appear to have a higher protein content.
Related story: China probes baby milk price fixing
Chinese families, fearful of tainted formula, have been scouring the globe for milk they perceive to be safer. The rush has created shortages as far afield as the U.K. As a result, foreign baby formula brands such as Nestle (NSRGF) and Mead Johnson (MJN) have surged in popularity.
Not all foreign-sourced baby formula have continued to benefit from Chinese consumer preferences for non-domestic brands. Infant formula products from New Zealand have received additional scrutiny lately as Chinese companies have been buying up dairy farms in the country.
"People are saying they don't trust it any more than a Chinese source," said China Market Research analyst Ben Cavender. Consumers are becoming more concerned, Cavender said, that there's greater risk of "cutting corners, cutting costs" as Chinese businesses become more involved.
Last year, the New Zealand government approved the sale of 16 farms, including dairy farms, to Chinese developer Shanghai Pengxin Group.

 
Nnamdi Armstrong

C.E.O 

Sloane International Investments Ltd

+23408162319833

Dell raises takeover offer again

Michael Dell and private equity firm Silver Lake sweetened their offer for Dell Friday morning, increasing their takeover price to $13.75 per share and adding a special dividend of 13 cents a share.

 

 

 

 

 

 Shares of Dell (DELL, Fortune 500) surged more than 5% on the news. But the drawn-out merger saga is not over just yet. 

 

Dell's board postponed the shareholder vote on the deal to September 12. To get Dell's board to agree to the vote, Silver Lake and Dell agreed that shareholders who abstain from voting will not be counted. Originally they had proposed that abstainers would be counted as voting for the deal.
Related: Dell rejects revised bid, but with a giant escape clause
"We believe modifying the voting standard is in the best interests of Dell shareholders, both because it has enabled us to secure substantial additional value and because it provides a level playing field for the decision facing shareholders," said Adam Mandl, the chairman of Dell's special committee.
The battle for control of the PC maker founded by Dell in his University of Texas dorm room in 1984 has been hotly contested since Dell and Silver Lake proposed a leveraged buyout in February.
Activist investor Carl Icahn, who holds roughly 8% of Dell's shares, has been fighting Michael Dell and Silver Lake's attempts to take the company private. Icahn has said that he wants to run Dell and has possible CEO candidates in mind to run the company. He has chastised the company's board and Michael Dell in interviews and on Twitter.
One recent Tweet from Icahn: "All would be swell at Dell if Michael and the board bid farewell."
And in response to Friday's Dell decision, Icahn said in a statement that "the war is far from over."
"Michael Dell's offer substantially undervalues the company. We believe that an increase of a mere 13 cents is an insult to shareholders," he added,
Icahn pledged to continue to fight Dell's board in court over its plans to hold a vote on a different day than the company's annual meeting.
If successful, the Dell deal would be one of the largest leveraged buyouts in history.
Related: Icahn says he wants to run Dell
Dell has been trying to reduce its reliance on the PC market and shift to hot businesses like cloud computing, storage and corporate software. About half of Dell's sales come directly from PCs, and another 20% comes from PC peripherals like monitors, keyboards and printers.
But the problem for Dell is that its competitors, most notably Hewlett-Packard (HPQ, Fortune 500) and IBM (IBM, Fortune 500), are trying to do the same thing.
Dell hopes that by going private, it can more nimbly restructure and adjust its business without having to answer to shareholders. Going private can take a the company out of the quarter-to-quarter grind of meeting Wall Street's expectations. But it also means Dell will have less access to funds to make large acquisitions that could help transform the company.

 

The battle for Dell

Silver Lake seems to be in a position to win big even if the bid is scuttled by Icahn. But it has more incentive to get the deal done now. That's because Dell said Friday that the breakup fee Silver Lake would earn if the deal is called off has been reduced to $180 million from $450 million earlier.
 Silver Lake declined to comment further on this proposal.

 Nnamdi Armstrong

C.E.O 

Sloane International Investments Ltd

+23408162319833