Q&A with Fidelity Magellan's Harry Lange

Lowell: I wanted to catch up and ask about what you're doing relative to specific sectors in the market in order to help us view your map of today's global risks and rewards.

Lange: Right. I'm a contrarian growth investor. So when the market sold off pretty heavily I did get more aggressive. A little bit more into technology stocks, higher beta things, and then more recently in the last few weeks, I started adding to financials, which is pretty new for me.

Lowell: That's very new for you; in fact it's the first time you've added to the group since taking the helm at Magellan.

Lange: Brand new. I've strictly always been underweight in financials.

Lowell: When you say financials, do you mean mainly US – and is this a call for a bottom in this group?

Lange: US. Just thinking of it really, I've felt the bottom I think in the write-offs and write-downs from here on. There will still be a credit crisis because that's a long lagging thing, but I think the liquidity and confidence in the financial markets is coming back, so I'm getting more optimistic.

Lowell: Technology is Magellan's largest weighting; twice the weight of your benchmark. But they're not the typical tech leadership names.

Lange: I do not have the traditional big cap US tech stocks you think of; not many companies that were even around or leaders ten years ago or so. So it is more either foreign companies or ones that sell into foreign markets pretty heavily.

The weighting in tech reflects my belief that consumers in emerging markets will be buying a lot of tech related gadgets. That has been a theme for awhile. So those people that sell cell phones, flat panel TVs and things into emerging markets, that's where I am. I don't have much that really depends on the US consumer or even US enterprise as the customers.

Lowell: At a point in time where everyone is buying mega cap US multinationals, it's interesting to see you running one of the world's biggest funds basically not following that course, especially with regards to your two largest stakes, tech and energy.

Energy is your second largest position – played similarly to the way you play technology; the typical leadership names aren't present.

Lange: I'm overweight energy. But, it might not be so apparent in terms of just the total weightings if you look at my sector weights, because I'm underweight in the big integrated oil companies. I think they're going to do fine, but they're probably a little bit worried about windfall profits tax or something.

And foreign governments are trying to get bigger cuts of the action and higher royalties. And that's a little bit of a wind in their face, but I'm way overweight now in E&P kind of companies; coal and oil sands and solar wind, and other energies.

I really do think that oil's going to be short. I just don't think they're going to find enough to handle the demand in emerging markets and Asia. I think that's the only thing that keeps China from catching up to the US and Western Europe living standards is the shortage of oil. So I don't think they're going to back off in their demand for it.

Lowell: Let's talk healthcare.

Lange: I'm definitely underweight big pharma. There are too many drugs coming off patent combined with not really knowng what a new President might do for healthcare. So, I'm not very excited.

I have a few things that don't depend on reimbursement. So more companies that sell products for aging Americans for cosmetic purposes, and some medical device names. I have some biotech, too, because biotech stocks have been knocked down. So a mix of different things.

Lowell: Another area where a lot of other money has been seeking shelter, consumer staples, finds you consistently underweight.

Lange: Yes, and I'm not thinking of stepping that up either. If tech and growth stocks had a huge run like they had in 2007, I'd think about cutting back some on that and going into consumer staples. It just seemed like there's so many other opportunities somewhere else.

Big multinationals benefit from the weakness of the dollar, and for the consumers doing well overseas. It has a couple of things that I like about them, but then they do have a lot of cost headwinds, too, on their raw materials, and just not exciting enough growth.

I do have the biggest weightings I've ever had in things like gold and precious metals and that kind of high end type of things, because the new rich people in the Middle East, Russia, China, and India have 60% more of their net worth in those types of things compared to Americans or Western Europeans.

So most of my stocks are playing the middle class, and the growth of consumer middle class around the world, but I also own some stocks to take advantage of the newer wealthy people around the world.

Lowell: Now that we've covered the sector stepping stones that comprise your market views, let's talk about your world view. You've always run Magellan as a global growth portfolio. Give me a few points in terms of how you view the global economy as a whole.

For example, some analysts are expecting it to slow down mightily, pegging China's growth on the Olympics and thinking that somehow everything's going to stop after it. I don't buy that.

Lange: I know people here are worried – first of all, I don't think the US is going to go into a deep recession. I think we'll just be stuck with a mild one here for six to nine months, something like that. And I don't really believe in the contagion that much.

It does make some difference if we're weak. But we're not nearly as important in the world as we were after World War II, and we keep losing share of GDP. So, I don't think we're enough to drag the whole world down.

As long as other countries have leaders that don't make dumb moves, I think they can avoid that. I think they can avoid the contagion. I'm counting on China not going in the tank. That would change things. If China had some botched up policy that threw their economy into a recession, then I would have to rethink the whole picture.

But my positioning is that that's not going to happen, that they contain their growth to 8-10% GDP which would probably be OK, and help keep the world's growth engine at least idling along with the US.

Lowell: What about other areas on the global map? To my mind, Latin America remains a multiple play on energy, but I'd be interested to hear what you have to say about it.

Lange: What I like better is that a lot of the countries in Latin America, Brazil, Argentina, and Mexico, have had issues and runaway inflation from time to time and things like that, and some of their corporate governance has gotten better, too, making more rational economic type decisions. So I'm pretty optimistic. I've got the biggest weighting I've ever had in Latin America.

Lowell: Here at home?

Lange: I guess I have confidence in the US consumer or the US government. That's why I think it'd be more shallow than in the past.

If we use the example from other real estates bubbles when they burst and things like that in Japan, I think our institutions are a lot quicker, there's a lot of money out there on the sidelines that is waiting to buy distressed properties, so it could be sharp.

I think we're going to get through it a lot quicker than people think – except for a few short sellers in financial markets, it's in almost everybody's interest to get this thing over with.

Lowell: Thanks Harry."

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