By Jon Kamp
Of DOW JONES NEWSWIRES
BOSTON -(Dow Jones)- Fidelity Investments' Magellan fund, one of the largest mutual funds in the country, significantly boosted its investment a few months ago in insurer American International Group Inc. (AIG) - a move that looks bad thus far.
Time will tell whether the fund's June move will turn out to mark a shrewd bet on a company bound for recovery, or whether the fund later altered course. In the months following Fidelity's increased investment in AIG, - and particularly in recent days - the situation at AIG has become considerably more tense.
The insurer's share price has plummeted to the lowest point in two decades as it tries to stave off a potentially damaging credit-rating downgrade. AIG's shares were down to $5.53 in recent trading, dropping 54.5% for the session, on top of the 31% decline posted Friday.
AIG shares ranged between $26.37 and $36.77 in June, when the $35.28 billion Magellan fund saw its stake in the insurer rise to $865.1 million at the end of month from $475 million at the end of May, according to records from Fidelity. The move made AIG the sixth-largest holding in the Magellan fund.
Shares of AIG were in a downturn in June, falling 26.5% over the course of the month. At the time, the company was coming off reported losses in the prior two quarters.
AIG now is working on a survival plan that involves selling off valuable assets, raising capital and seeking help from the Federal Reserve, the Wall Street Journal reported, citing people familiar with the situation. The company seeks to raise an additional $40 billion to avoid a downgrade, according to the Journal.
The Magellan fund, which has been managed by Harry Lange for the last three years, had an $851.7 million stake in AIG at the end of July, according to the latest-available figures from Fidelity.
A spokesperson for the mutual-fund giant could not be reached for immediate comment on the matter Monday. Fidelity and its fund managers typically do not comment on individual holdings within the company's many funds.
Morningstar rates Magellan with three out of a possible five stars. The fund is down 22% on the year, outpacing the decline in the S&P 500. The big fund posted a nearly 19% gain in 2007.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com
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(END) Dow Jones Newswires
September 15, 2008 11:57 ET (15:57 GMT)