Manager Harry Lange has been swinging for the fences since taking over the lagging fund in 2005. His gutsy style could revive Magellan, now that it's open to new investors.

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Lange's risky bets on technology helped boost Magellan's returns in 2007.

Keep a cool head in a turbulent market to ensure your portfolio doesn't lose value.

NEW YORK (Money) -- Can Fidelity Magellan regain its former glory? That's the question facing Harry Lange, manager of the $40 billion fund, which recently re-opened to new investors.

Once considered Fidelity's flagship fund, Magellan reached a peak of $102 billion in assets back in 2000. But the fund has been closed to new investors since 1997. And after years of mediocre returns under index-hugging former manager Robert Stansky, assets dwindled, as impatient shareholders bailed out and 401(k) plans dropped Magellan from their fund menus.

In November 2005 Fidelity brought in manager Harry Lange to restore returns. A growth-style go-anywhere investor reminiscent of famed Magellan manager Peter Lynch, Lange immediately began overhauling the fund portfolio.

So far, the results are encouraging. True, the fund delivered mediocre returns in 2006. But last year Magellan soared 18.8%, which puts it in the top 21% of the fund's large-cap growth peers. And during the two-plus years since Lange took over Magellan, he's delivered an annualized return of 7.7%, vs. 6.6% for the S&P 500.

Fueling those returns were bets on technology, including Nokia (NOK), the fund's largest single holding at 5.8% of assets, as well as stakes in Google (GOOG, Fortune 500) and Corning (GLW, Fortune 500). All told, tech made up 26% of Magellan's assets last year.

'I was a bit early buying tech stocks in 2006, when people were still worried about tech's prospects,' says Lange. 'But last year people finally began to believe in the earnings in these stocks.'

Lange also loaded up on foreign stocks, which recently accounted for nearly one-fourth of the portfolio, including Chinese companies Baidu.com (BIDU), the Asian equivalent of Google, and Ctrip.com, a travel booker.

'Growth prospects overseas are outstanding,' says Lange, 'but last year the P/Es on some companies, particularly the Chinese stocks, got too high.' As a result, he's trimmed back some of the priciest China holdings, although he still sees opportunities in Mexico and Latin America. 'Housing and real estate stocks there are a real opportunity,' he says. 'You have a large population looking to buy their first homes.'

Energy has been another big winner for Lange. His largest bets are oil and gas producers, such as Canadian Natural Resources (CNQ), at 2.6% of assets, and Suncor Energy, at 1.5%. He's also scooped up solar and alternative-energy stocks, such as Renewable Energy, a Norwegian solar power firm, at 1.9%.

'The energy demand in the U.S., as well as the demand from growing economies in China and elsewhere, means that supplies will be tight well into the future,' says Lange. Still, he says, high P/Es on some alternative energy stocks also led him to cut back on those stakes last year.

Meanwhile, Lange steered clear of most financial stocks and the subprime mess, selling his stake in Wells Fargo in 2007. The few financial stocks in the portfolio, such as State Street and MetLife, have largely escaped the worst of the industry's woes.

But Lange hasn't been able to sidestep the market turmoil in 2008, as favorites like Google and Apple (AAPL, Fortune 500) fell 25% and 37%, respectively. As of Feb. 9 Fidelity Magellan is down nearly 11.4% year to date, more than two percentage points below the S&P. That puts Magellan in the middle of the pack for large growth fund so far this year.

'This has been one of the toughest first months of the year since 2001,' Lange notes. 'And many growth funds have given back some of the gains they earned last year.' Lange is optimistic; he sees more opportunities in large-cap stocks now that valuations have dropped.

And Lange's outlook remains bright. 'The economy is going to be pretty slow for at least the first half of the year in the U.S., but I'm pretty confident we aren't going to have a big drop. We're bouncing on the bottom right now.'

Lange's performance so far has been impressive, says Jack Bowers, editor of the Fidelity Monitor newsletter. 'Lange is a theme-based investor, and this is just the right market for him,' says Bowers. 'With fresh cash inflows, he can put his ideas to work.'

But Lange faces a stiff obstacle - Magellan's asset base, though smaller than before, is still sizeable, which limits his flexibility. And now that the fund has re-opened, those assets can be expected to grow.

'Lange gained his reputation at smaller funds, where he could buy mid-sized and small stocks,' points out Dan Lefkovitz, analyst at Morningstar. 'At a large fund like Magellan, it's hard to take meaningful stakes in smaller stocks.' Lange previously managed Fidelity Capital Appreciation and Fidelity Advisor Small Cap.

Still, investors who have Fidelity Magellan as the large growth choice in their 401(k) menu may want to take a look at it. Lefkovitz says: 'Under Lange, Magellan is likely to be more volatile than before. But there's also more potential for better returns.'

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