LONDON–In a move that could help improve relations between Google Inc. and the media industry, the Internet search company is offering publishers a way to build more solid "pay walls" around their online stories while still appearing in search results.
In an official blog post Tuesday, Google said it will let publishers limit the number of restricted articles that readers can get for free through its search engine.
The change could remove one significant hurdle publishers face as they contemplate charging readers online. Many newspapers are considering such fees because online advertising on free sites hasn't offset the precipitous decline in print ad revenue that has come with the recession and competition from the Web.
The Wall Street Journal is perhaps the best example of how the new tool could help.
The newspaper charges for access to most articles on its Web site, but its pay wall is "leaky." Readers can grab the first sentence from a preview of the story, punch it in to Google and access the full story in the search results.
The Journal could simply block Google from indexing its stories, but that would cut traffic to its site significantly. Less traffic means less ad revenue.
The problem has infuriated executives at News Corp., which owns the Journal.
News Corp. Chairman Rupert Murdoch told a conference organized by the U.S. Federal Trade Commission on Tuesday that media companies should charge for content and stop news aggregators such as Google from "feeding off the hard-earned efforts and investments of others.''
The change to Google's "First Click Free" program would allow publishers to limit the number of paid articles a reader could access through its search engine to five per day.
That could assuage the anger of media titans like Murdoch, allowing news outlets to stay relevant by appearing in search results while still trying to wring fees from readers.
A News Corp. spokesman declined comment Wednesday.
In Google's blog post, Josh Cohen, senior business product manager, stressed that publishers and Google could coexist.
"After all, whether you're offering your content for free or selling it, it's crucial that people find it." he said. "Google can help with that.''
Cohen said that Google will also begin indexing and treating as “free" any preview pages – usually the headline and first few paragraphs of a story – from subscription Web sites. People using Google would then see the same content that would be shown free to a user of the media site. The stories would be labeled as “subscription" in Google News.
"The ranking of these articles will be subject to the same criteria as all sites in Google, whether paid or free," Cohen said. "Paid content may not do as well as free options, but that is not a decision we make based on whether or not it's free. It's simply based on the popularity of the content with users and other sites that link to it.''
The yen’s surge to a 14-year high and renewed deflation may prompt Japanese Prime Minister Yukio Hatoyama to press the central bank to take further steps to support growth.
Hatoyama, 62, will meet Bank of Japan Governor Masaaki Shirakawa “soon,” Chief Cabinet Secretary Hirofumi Hirano told reporters yesterday. Hirano said the leaders will discuss quantitative easing policies in addition to falling prices and the stronger currency.
The government has stepped up calls on the central bank to prop up growth since it declared the economy was in deflation on Nov. 20. Shirakawa, who yesterday pledged to act “promptly and decisively,” has few options given that the key overnight lending rate is at 0.1 percent and the bank is already purchasing government bonds and corporate debt.
“We’re not in a situation where the BOJ will act just because the government is pressuring it to,” said Junko Nishioka, a chief economist at RBS Securities Japan Ltd. in Tokyo. “There’s an election next year, so the government wants to show how much it has already done.”
Nishioka said she didn’t expect any policies to be announced from the central bank after this week’s meeting with Hatoyama, given that it’s common for policy makers to meet and discuss the economy and financial markets.
Deflation can undermine economic growth by making debt burdens heavier, eroding corporate profit margins and deterring capital investment and consumer spending. Japanese prices excluding fresh food slid 2.2 percent in October from a year earlier, a near record drop, and the government’s declaration of deflation was its first in more than three years.
‘Promptly and Decisively’
“The bank is always prepared to act promptly and decisively if judged necessary to ensure the stability of financial markets,” Shirakawa said yesterday in Nagoya, central Japan. “The bank will do its utmost to overcome deflation both in terms of monetary easing and ensuring the stability of the financial markets.”
Reports yesterday showed Japan’s recovery from its worst postwar recession may be weakening. Industrial output grew at the slowest pace in eight months in October as manufacturers including Toyota Motor Corp. pared production at home. Wages tumbled 1.7 percent, extending their longest losing streak in six years.
Hatoyama championed the Bank of Japan’s independence after he took power in September following his Democratic Party of Japan’s landslide August election victory. Hirano reiterated yesterday that the government respects the bank’s autonomy.
Testing BOJ
Other Cabinet members haven’t been shy in testing the central bank. Deputy Prime Minister Naoto Kan said on TV Asahi last week that he’d “like to see monetary policy work just a little harder” to battle deflation. Financial Services Minister Shizuka Kamei said in October that the bank “sometimes sounds like it’s talking in its sleep.”
“Hatoyama’s Cabinet seems to think that the BOJ isn’t playing a big enough role in fighting deflation,” said Susumu Kato, an economist in Tokyo at Calyon Securities. “The government may ask the BOJ to increase the amount of its government bond purchases” to around 2 trillion yen ($23 billion) a month from 1.8 trillion yen, Kato said.
The government may be looking for monetary policy measures to combat prices and the yen because it has the highest debt burden in the industrialized world, limiting the scope of fiscal policy. Nevertheless, Finance Minister Hirohisa Fujii said yesterday that he is compiling an extra budget of more than 2.7 trillion yen, the amount of money frozen from the previous administration’s budget, to spur growth.
Quantitative Easing
The BOJ introduced quantitative easing steps in March 2001 before suspending those policies in March 2006. Shirakawa has said the policy of flooding the economy with cash had a limited impact on economic growth.
Hatoyama and Shirakawa are also likely to discuss the yen, which rose to a 14-month high of 84.83 to the dollar on Nov. 27, setting off a chorus of complaints from Japanese manufacturers. Canon Chief Executive Officer Fujio Mitarai said Japan is “standing on the edge of a cliff.”
Shirakawa said yesterday the government will decide whether to intervene, adding that the central bank will “closely watch these developments and their effects with great interest.”
Canon Inc. would lose 4.4 billion yen in sales and 2.5 billion yen in operating profit this quarter for every 1 yen drop in the dollar compared with its forecast of 90 yen, the company said on Oct. 27.
Japan last intervened in the currency market in March 2004, when the yen traded around 109 per dollar. The central bank sold 14.8 trillion yen in the first three months of that year.
“We’re paying close attention to whether the BOJ will go along with intervening in the market,” said Shinichi Ichikawa, chief market strategist at Credit Suisse Securities Japan. “Intervention would stop the bleeding for now, so it’s important.”
Russian consumers are benefiting from a stronger ruble that’s boosted incomes and offset tight credit while a lack of investment is hampering a rebound in manufacturing, a series of economic reports showed today.
Real disposable incomes posted the biggest jump in more than a year last month and retail sales rose from September, signaling consumer demand is returning following October’s 3.4 percent gain in the ruble against the dollar.
The economy of the world’s biggest energy producer is showing signs of recovery as a return of global demand for commodities supported exporters and domestic demand rebounded after the ruble gained to the strongest level this year. Russia’s record 10.9 percent economic contraction in the second quarter eased to an 8.9 percent decline last quarter.
“Household consumption is stabilizing after lagging behind the rest of the economy,” said Olga Naydenova, an economist at Otkritie Financial Corp. in Moscow. She expected a broader improvement in indicators last month as “people have learned to adapt to the changing situation, and budget spending on social needs also helped.”
The ruble lost 0.8 percent to 29.0506 per dollar at 4:22 p.m. in Moscow, paring its weekly gain against the U.S. currency to 0.6 percent. The ruble slid 0.5 percent to 35.3348 against the central bank’s target currency basket.
Retailer Gains
OAO Dixy Group, Russia’s third-largest publicly traded food retailer, added 4.62 rubles, or 2.1 percent, to 219.99 rubles in Moscow. The stock has gained 323 percent so far this year. The shares of X5 Retail Group NV and OAO Magnit, Russia’s two biggest food retailers, are up 234 percent and 274 percent in 2009, outperforming the 30-stock Micex Index, which has jumped 114 percent this year.
Disposable incomes climbed a monthly 6 percent in October and rose 3.9 percent compared with the same period last year, the biggest annual jump since September 2008, the Federal Statistics Service said. Retail sales rose 3.2 percent from September and declined 8.5 percent on an annual basis compared with a 9.9 percent drop the month before.
The government has made spending on social needs, including benefits and pensions, a priority of its stimulus program, which deployed 2.5 trillion rubles ($86.4 billion) to bolster the economy with tax breaks, loan guarantees and subsidies.
‘Too Early’
Service industries, which account for about 40 percent of the economy, rose for a third month in October, advancing to the highest since September 2008, VTB Capital said on Nov. 5, citing its Purchasing Managers’ Index.
“Although the economy is no longer declining, it is too early to speak of a recovery,” Alfa Bank analysts led by Ekaterina Leonova said in a Nov. 18 report. “Signs of improvement are still very fragile and do not constitute a trend.”
The ruble appreciated 3.4 percent against the dollar for its second consecutive monthly gain in October. Imports account for about 49 percent of the consumer goods sold in Russia, the government estimated last year.
A stronger currency has increased spending power for the domestic market as “it transfers incomes into people’s pockets,” said Clemens Grafe, chief economist at UBS in Moscow.
Wage declines also eased last month as exporters returned to profitability. Wages fell an annual 4.5 percent in October, compared with a 4.9 percent decline the previous month. Retail sales have fallen for nine consecutive months, the longest period of declines on record.
Manufacturing Slump
Rebounding consumer demand isn’t reflected in the country’s manufacturing sector. Russia’s industrial slump deepened in October as companies failed to build up inventories and credit remained tight even after eight central bank interest rate cuts since April.
Output in October fell 11.2 percent from a year earlier after the decline eased to 9.5 percent in September. Manufacturers are struggling to stay profitable as banks rein in credit, hampering investment even as demand picks up for commodities, Russia’s chief export.
“High interest rates and sharp ruble appreciation may have added pressure to the competitiveness of Russian goods,” said Anton Nikitin, an analyst at Renaissance Capital in Moscow. “In this environment, fourth-quarter GDP growth might be weaker than we previously thought.”
Shrinking output may spur the central bank to further loosen monetary policy, Nikitin said.
Bank Rossii is scheduled to hold a board meeting on Nov. 24 where a rate decision may be discussed, First Deputy Chairman Alexei Ulyukayev said yesterday.
Treasury Secretary Timothy Geithner on Saturday stressed the necessity of keeping global economic stimulus in place until recovery is assured and opposed the utility of a tax on financial transactions as a way to dampen risky bank behavior.
Speaking at the conclusion of a two-day meeting of Group of 20 finance minister and central bankers, Geithner said there was broad agreement that “growth remains the dominant policy imperative across our economies.”
He said high U.S. unemployment, which hit a 26-1/2-year high at 10.2 percent of the civilian workforce in October, highlighted a “very tough economic environment” that will a period of sustained growth to correct.
Earlier, British Prime Minister Gordon Brown had suggested that the G20 should levy on banks — blamed for the excessive risk-taking that led the world into a now-easing financial crisis — and used the proceeds to fund future bailouts.
Geithner played down that idea, noting that the Obama administration was already pushing an overhaul of financial market rules in Congress that would ensure that banks pay the costs of their failures in future from their own pocket.
“A day-by-day financial transaction tax is not something we are prepared to support,” Geithner said in an interview with Sky News. In his concluding press conference, Geithner was asked repeatedly to say why he opposed such a tax on banks and indicated he doubted its effectiveness.
“This idea (of a bank transaction tax) has been around for a long time…I think frankly the experiences are mixed,” he said, expressing an American view that there was no widespread backing for such a tax.
Canadian Finance Minister Jim Flaherty was similarly skeptical.
“It’s one of the ideas that’s on the table, but is not particularly attractive to me as finance minister of Canada. We have been a government that has been reducing taxes,” Flaherty said.
ON DANGEROUS GROUND
Geithner’s key message was that recovery still remains on perilous ground and that it was too soon to discuss the timing for removing the massive fiscal and monetary stimulus that countries around the world have poured into their economies.
“Government policy has to provide a bridge to growth led by the private sector,” he said. “We’re now in the middle span of that bridge.”
That meant policymakers must move cautiously in trying to bring down huge budget deficits without choking off chances for growth led by consumer spending and business investment.
“If we put the brakes on too quickly we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater,” Geithner said.
“It’s too early to start to lean against recovery.”
The United States welcomes the rise in the yuan’s exchange rate in recent years but wants the currency to climb further, visiting Commerce Secretary Gary Locke said on Tuesday.
“We think more progress needs to be made in that area,” Locke told a news conference in Guangzhou, the capital of southern Guangdong province, which accounts for nearly a third of China’s exports.
China has in effect re-pegged the yuan to the dollar since mid-2008 to help its exporters, who were hit hard by a slump in orders as the global financial crisis intensified.
Beijing revalued the yuan by 2.1 percent against the dollar in July 2005 and, over the following three years, gradually let it climb by another 19 percent before calling a halt to its rise.
“We’re pleased with the movement so far, but of course more needs to be done,” Locke said.
The commerce chief will participate on Wednesday and Thursday in high-level trade talks in Hangzhou, along with U.S. Trade Representative Ron Kirk and Chinese Vice-Premier Wang Qishan.
Locke said he expected the meetings to pave the way for “significant improvements and progress in the trade relationship between the two countries” when President Barack Obama visits China next month for talks with President Hu Jintao.
Locke did not delve into detail but said that energy co-operation would be a “big topic” between the two presidents, with U.S. firms seeking easier access to the potentially lucrative China market for clean energy, alternative fuels and energy-efficient products.
The yuan’s exchange rate has dropped down the U.S. diplomatic agenda in the past year as Washington has looked to China for help in hauling the world economy out of recession.
The Obama administration said on October 15 that it continued to believe the yuan is undervalued but declined to declare that China was manipulating its currency.
But the Treasury Department, in a semi-annual report to Congress on currency practices of key trade partners, said China was piling up foreign exchange reserves at a rate that threatens progress in reducing global economic imbalances.
It warned that lack of flexibility in the exchange rate for the yuan might be damaging as stimulus is withdrawn and overseas demand for Chinese-made goods returns.
Currency traders in the non-deliverable forwards market were anticipating on Tuesday that the yuan would be worth 2.4 percent more against the dollar in a year’s time.
PATENT PROBLEMS
Locke said a recent spat over Washington’s decision to slap tariffs on imports of cheap Chinese tires would be discussed in Hangzhou, but he played down the issue.
Commercial real estate company Capmark Financial filed for bankruptcy protection on Sunday, weighed on by declines in the sector and a heavy debt load related to its leveraged buyout.
Capmark, which was created out of the commercial real estate assets of General Motors’ finance arm GMAC in March of 2006, had indicated earlier this year that it might file for bankruptcy.
It had said that it was negotiating with lenders, bondholders and the Federal Deposit Insurance Corp. Its creditors include banks Citigroup and JPMorgan Chase.
The move wipes out the private equity investments of Kohlberg Kravis Roberts & Co, Goldman Sachs Group’s Goldman Sachs Capital Partners and Five Mile Capital, which bought Capmark for $1.5 billion in cash and more than $7 billion in debt.
According to the bankruptcy filing, the group owned 75.4 percent of the company while GMAC, or the General Motors Acceptance Corp, owned 21.3 percent. Employees and directors owned most of the remaining stock. Equity investors are typically wiped out in bankruptcy.
KKR already wrote down its investment in Capmark to zero earlier this year. KKR has had other failed equity investments this year, including its 2005 purchase of doormaker Masonite, which filed for bankruptcy in March and has since emerged from court.
In order to raise cash, the company signed a deal in September to sell its loan servicing and mortgage business to Berkshire Hathaway and Leucadia National for $490 million. That deal can still take place in bankruptcy.
Capmark listed $20.1 billion in assets and $21 billion in liabilities as of June 30, 2009 in the bankruptcy filing, which was made in U.S. Bankruptcy Court in Wilmington, Delaware.
(Reporting by Caroline Humer; Editing by Richard Chang)
American International Group is to sell its Taiwan life insurance unit for $2.15 billion, marking the largest disposal since a U.S. government bailout saved the insurer from collapse last year.
The sale of Nan Shan Life on Tuesday was another step in AIG’s effort to repay U.S. taxpayers after the government injected $80 billion into the company, but the insurer faces two more sales processes in Asia and others across the globe.
The sale is to two little-known buyers — a start-up financial group run by a former Citigroup banker and an obscure, publicly traded Hong Kong holding company with a market value of $111 million.
“It (deal) has to be approved by Taiwan’s investment commission first,” said Lee Chi-Chu, vice chairperson of the Financial Supervisory Commission, adding the regulator has not received an application from AIG. “We have told AIG that we do not welcome investors backed by China fund,” she said.
Taiwan’s business ties with China have picked up since President Ma Ying-jeou took office last year.
The agreement will likely to bring a sigh of relief to the AIG camp as, at one point, it looked liked the process would not succeed.
Primus Financial, the firm founded by Citi’s former Asia investment banking head, together with China Strategic Holdings, are to buy Nan Shan Life, ending a five-month auction that involved private equity firms and local financial groups.
Nan Shan, a top three Taiwan insurer, has assets of $46 savings account payday loans.4 billion and employs 36,000 sales agents in Taiwan and has a market share of 10 percent with its 4 million customers.
Primus will own around 20 percent of the business and China Strategic 80 percent, according to the companies.
The sale allows AIG to check one business off its list of units to sell in fund-raising efforts.
Hong Kong-based life insurer AIA is seeking a more-than $2 billion initial public offering and sources said American Life Insurance Co, which generates half its revenue in Japan, could fetch $5 billion in an IPO. [ID:nN08285471]
Both companies have also attracted acquisition interest, though nothing has materialized yet.
China Strategic, whose businesses include battery production and securities investments, had said it planned to raise about HK$7.8 billion ($1.0 billion) to fund a possible joint acquisition.
“The deal priced Nan Shan at about 1 time price to book, which is fair when you compare 1.9 times for Cathay Financial and Fubon Financial, and 1 time for smaller rival Shin Kong Financial,” said Dexter Hsu, an analyst at JP Morgan in Taiwan.
An executive from Deutsche Bank, which is Primus’s financial advisor, told Reuters that Primus would be using bank loans to pay up to 35 percent of the $2.15 billion.
The American whiskey market may be back on a roll. The industry which produces Jack Daniel’s and Jim Beam is seeing sales flatten in its domestic market but overseas business is booming and driving overall growth.
These two top brands already have half or more of their sales overseas and are dragging the rest toward export markets such as Western Europe and Australia where annual sales volume growth has averaged nearly 6 percent over the last 10 years.
Both compete head on with other Scotch, Irish and Canadian whiskies, but have done well as Brown-Forman Corp’s Jack Daniel’s became the world’s largest selling single whisky brand four years ago overtaking Diageo’s Johnnie Walker Red.
“Worldwide American whiskey has the opportunity to be the fastest growing in overseas markets. One of its advantages is its mixability compared to scotch whisky,” said Brown-Forman’s Chief Executive Officer Paul Varga.
In the economic downturn, Varga has seen some downtrading to cheaper brands, but whisky’s heritage and taste protects it from the worst of the downtrading seen in the vodka sector.
“The summer months have seen some easing of industry destocking while there is still some trading down,” he said.
The current downturn comes after a decade of growth which followed sliding volumes in the 1990s, and the domestic market has gained nearly 2 million 12-bottle cases since 2000 as whiskey like other spirits gained at the expense of beer.
The U.S. whiskey market was worth 28.3 million cases in 2008, over twice the size of the French cognac market at 12.4 million, but well below the scotch industry at around 100 million. This U.S. industry takes in two Tennessee whiskey distilleries and around 10 bourbon distilleries in Kentucky.
The market is dominated by Jack Daniel’s at 9.5 million cases and Jim Beam at 6 million, which make up 55 percent of U faxless pay day loans.S. industry volumes, and on the export front the former started selling more overseas two years ago and now sells 4.8 million cases outside the U.S. as it pushes into the big export markets of Britain, France, Japan and Australia.
“We are a near-10 million case brand, but could be a 17 million brand with more warehousing,” said master distiller Jeff Arnett at the Jack Daniel’s Lynchburg distillery in Tennessee.
North of Tennessee, Jim Beam is the world’s No 1 Kentucky bourbon, owned by Fortune Brands Inc, selling its 6 million case sales split equally between the U.S. and its big export markets especially Australia and Canada.
Around 12 years ago Jack Daniel’s first moved ahead of Jim Beam in volume terms, but Beam is fighting back as it is the first to move into flavored whiskeys, so popular in the vodka market, with its new Red Stag bourbon infused with black cherry.
This new product has sold 90,000 cases since its launch in June and is attracting new drinkers not seen as typical bourbon consumers. It is Fortune’s first major launch since Jim Beam Black Label over 10 years ago, and executives say if U.S. sales continue strong, it will look at the overseas market.
At Brown-Forman, Varga says Jack Daniel’s has not launched a new pure whiskey product for 12 years, and its flagship No 7 brand accounts for 97 percent of Jack Daniel’s volume.
In its last quarter, (May-July) the Jack Daniel’s family of brands, which includes strongly-growing ready to drink products, saw sales up 8 percent at constant currencies, and Varga says the sales mainly came from volume rather than higher prices.
Hewlett-Packard Co may get acquisitive again despite its recent absence from the technology sector’s M&A scene, analysts said, and Brocade Communications Systems Inc may a prime target.
Brocade is putting itself up for sale, and HP has looked at the company’s assets but has not made a formal bid, sources told Reuters. Brocade and HP declined to comment.
Brocade makes routers and switches for blade servers, as well as software to help companies manage data efficiently. It has been expanding its partnerships and already sells equipment to HP, International Business Machines Corp and Dell Inc.
Analysts say HP’s sprawling portfolio has cushioned it against the shock of the IT spending downturn, but that investors now want to see the world’s largest computer company move to ramp up growth. Some say one way to do that is through acquisitions.
Stifel Nicolaus analyst Aaron Rakers said HP is likely looking to acquire in areas such as software and networking, to complement its ProCurve networking product.
HP has been relatively quiet on the M&A front, Rakers said, given that the company is still working through last year’s blockbuster $13 billion acquisition of EDS.
“As we roll out into the next couple of quarters, I wouldn’t be surprised to see them do something,” he said.
Kaufman Bros analyst Shaw Wu said HP and its rivals are focused on offering customers an end-to-end suite of products. Cisco recently began selling computer servers targeted at data centers, pitting the company against HP and IBM.
“It makes sense for HP to add to its portfolio in two areas: one is networking, the other is software,” Wu said. “The more software and the more networking that they do, the better the margins.”
Wu said Brocade would be a good fit for HP, noting that an offer for Juniper Networks — another tie-up much speculated on in markets — the No. 2 networking equipment maker after Cisco, would be a bolder and more expensive move.
M&A HEATS UP
Juniper’s market capitalization of roughly $13.8 billion is more than three times that of Brocade. F5 Networks is another networking name that crops up in acquisition talk.
As the IT sector has stabilized, the economy steadies and credit looses, M&A has been picking up. Last week, Cisco agreed to acquire Norwegian videoconferencing company Tandberg for $3 billion, leading analysts to wonder whether HP would respond.
There were also major deals in an IT services sector that analysts say is ripe for consolidation: Dell’s $3.9 billion bid for Perot Systems Corp and Xerox Corp’s $5.5 billion play for Affiliated Computer Services.
HP has a formidable warchest of $13.7 billion in cash should it decide to deal. It has made more than 45 acquisitions since 2001.
In the 1980s, when stocks mostly surged, a few mutual fund managers became the equivalent of rock stars.
Tops among them: Peter Lynch, who racked up average annual returns of a remarkable 29 percent over a 13-year run.
Lynch did it at Fidelity Magellan, which continued to grow after he left in 1990. What once was the world’s largest fund swelled from $13 billion to nearly $110 billion a decade later. Assets peaked three years after the fund shut its doors to new investors because it became so big it was hard to manage effectively.
So where is Magellan now? It’s at $24 billion, and struggling to draw investors who fled in droves after years of mediocre performance. Magellan is still big by any standard, but it’s merely Fidelity’s fourth-largest stock fund.
"I don’t worry about too many assets now," says current manager Harry Lange, who took over in late 2005.
Magellan reopened to new investors early last year, but those who gave it a try were disappointed. The fund’s 2008 plunge? Forty-nine percent — steeper than the market’s nearly 39 percent decline. Blame bad bets on dogs like AIG and Wachovia — financial companies that Lange held on to for too long.
But Lange is turning things around, thanks to a sharp departure from his predecessor’s style. Where Robert Stansky was criticized for too closely mirroring broader markets, Lange has tilted the fund heavily in favor of growth stocks — companies whose comparatively steep share prices are backed by expectations that earnings will keep growing rapidly. He’s eased out of cheaper value stocks with steadier earnings, and takes a go-anywhere approach in keeping with the fund’s namesake 16th century explorer. Nearly one-quarter of Magellan’s holdings are international stocks.
Many of the same bets on riskier stocks that weighed Magellan down last year are lifting it in 2009. It’s up 35.6 percent, easily topping the nearly 17 percent gain for its benchmark, the Standard & Poor’s 500, and beating nearly nine of 10 of its peer funds.
So is it time to climb back aboard Magellan? Only if you’re willing to commit to a fund whose penchant for racy stocks makes it unusually volatile.
This year, the fund expanded its already substantial stake in recently hot technology stocks — its second- and third-largest holdings are specialty glass maker Corning Inc. (up 62 percent this year) and semiconductor maker Applied Material (up 34 percent). It’s also favored hard-hit fare like home builder Toll Brothers (down 8 no teletrack payday loans.8 percent) and big banks — Magellan’s most recent list of top 10 holdings included Bank of America, J.P. Morgan Chase, Wells Fargo and Goldman Sachs.
Lange has turned Magellan into "a fund for optimists," according to Morningstar’s lead Fidelity analyst, Christopher Davis.
"If you look at its portfolio, it’s positioned for an economy that’s improving," Davis says, noting an absence of such defensive favorites as Wal-Mart and Procter & Gamble.
Lange says this year he’s slightly eased off his leaning toward growth stocks but still heavily favors the category. Though value stocks outperformed growth for an eight-year run after the dot-com bubble deflated early this decade, the pendulum swung back to growth last year — financial stocks that were hit so hard last year are mostly in the value category. Growth’s ranks include plenty of tech names that have recently fared well.
Lange still likes tech because of its big stake in emerging markets, where consumers in countries like China and India continue to drive growing demand for gadgets including mobile phones from makers like Nokia, Magellan’s top holding. He figures that trend will continue giving growth an edge over value. "I’m pretty confident that growth will be as strong in the next six to 12 months," Lange says. "There are a lot of people out there who think after that, it will be a sluggish recovery. I’m more bullish than that."
As for his fund’s choppiness, Lange acknowledges that with his growth-oriented style, "it’s pretty tough not to have volatility in these unusual times."
Even with this year’s strong results, winning back investors who fled Magellan has proved tough. Lange is still trying to shake the cumulative record of the last 10 years, a period when Magellan posted an average annual loss of 1.2 percent, slightly worse than most of its peers.
"This is not your grandfather’s Magellan fund," says Jim Lowell, a former Fidelity employee who runs an independent newsletter, FidelityInvestor.com, that evaluates the company’s funds.
Lowell currently recommends Magellan but says it’s no longer appropriate as a core retirement holding for investors who are looking for the broad exposure it once offered. Instead, Magellan is geared toward those seeking more growth exposure in an otherwise diversified portfolio.
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