Jeffrey Feingold of Fidelity Magellan, a fund with 16% average annual returns over the past half-century, discusses his investing themes

Investors in 2015 have their pick of strong investment themes.

In any determination of the best mutual fund of all time, Fidelity Magellan would have to merit serious consideration.

Of course, there are too many ways to slice and dice performance data. Contending funds have different inception dates and changes of management would also factor in, but what would be impossible to ignore in Magellans case is the funds superlative annual returns averaging 16.34% for now over half a century (from May 1963 through the most recent Nov. 30 performance report).

The Fidelity fund became a household word under the tutelage of Peter Lynch in the 1980s.

While its current manager has helmed Fidelitys flagship fund a little over three years, Jeffrey Feingolds navigation of Magellan has enhanced the funds long-term performance.

At a time when the market has returned a robust 21% annually, Feingold has added more than 100 basis points annually over the funds S&P 500 benchmark.

So both Feingolds performance as a fund manager as well as the economic importance of the fundits over $16 billion size has greater weight than the GDP of a good many smaller countries like Icelandmake his views on investing of great interest to financial advisors.

ThinkAdvisor talked with the Magellan manager by phone on Monday to get his sense of the opportunities in the coming year.

While Fidelity policy precludes him from publicly sharing his predictions about specific stocks on a prospective basis, Feingold was willing to discuss themes currently attracting his attentiona natural for the former head of the Fidelity Trend Fundand more importantly, to explain how he looks at stock selection.

Perhaps the most important thing to know about Feingolds stock selection is that he is a true stock picker, eschewing large sector bets.

So if financials represent around 17% of the S&P 500 currently, Feingold is looking to beat that benchmark, as he has, by keeping the same rough sector weight while picking better stocks than the index.

Im trying to find companies growing their earnings the fastest, Feingold said. For me that doesnt mean any one particular area of the market. There are fast growing earners in all areas. Magellan is an all-weather fund, he said.

While Feingold is not slicing and dicing the S&Ps sectors in any unusual way, the large-cap growth manager does have a nuanced view of growth, which is critical to his strategy.

Specifically, he looks for three kinds of growth.

The first is the kind that is popularly understood as growth: companies with rapidly expanding earnings growth rates that are usually associated with innovative, high-demand products, most particularly in the tech sector.

The second kind of growth Feingold seeks is opportunisticessentially cheap stocks with improving fundamentals whose surprise earnings acceleration will boost fund returns.

The third kind of growth with which Feingold balances the Magellan portfolio are quality stocks. These generally household name-type companies are characterized by strong balance sheets, seasoned management and high returns on capital.

What is significant about this strategy is that, that is how Feingold attempts to limit downside risk in a fund he said is positioned slightly more aggressively than the market.

Hes got somewhere around 1% of the portfolio in cash, so the way he plays defense is via the quality and to a lesser extent opportunistic growth stocks, which add ballast to the fast-moving secular growth stocks (or scarce growth, as he calls it). Each of Feingolds three growth styles constitutes about a third of the Magellan portfolio.

With that prism in mindand that is critical since, again, Feingold does not talk macro (There are always stories that produce superior earnings growth, he said)here are themes of current interest to the Magellan manager:

1. Airlines Ready for Take-Off

It is not only flight crews and passengers who have experienced the U.S. airline industrys turbulence first hand, but investors as well. The industry, since deregulation, has been no stranger to bankruptcy.

But depressed share prices and fierce competition can result in tremendous upside for shareholders, which makes airlines Feingolds prime candidate for opportunistic growththat is, cheap stocks ready for earnings take-off and acceleration.

Industrial change brought about by consolidation, and in this case by bankruptcy, can lead to significantly profound change not just in industries, but also in stocks, said Feingold, who covered the industry as an analyst at Fidelity before becoming a portfolio manager.

As such, hes seen airline companies burn through billions of dollars of free cash flow and earnings over time. But thats not what hes seeing now; hes seeing, over the past 18 to 24 months, managers talk about things important to investors like return on capital.

And thats not even talking about energy price moves, whose lower fuel costs he calls added gravy. Rather, Feingold sees structural changes within an industry that can bring about added return.

He evidently expects acceleration from the airlines in the Magellan portfolio, which include, according to records as of Oct. 31, Delta Airlines, JetBlue Airways, American Airlines, Spirit Airlines and Southwest Airlines, in order of portfolio weight.

Over the last 18 months weve seen improving fundamentals [in these cheap stocks]. Were not in first, second or third innings anymore, but its something in which Im still interested. [The opportunity] will play itself out in the next couple of years, he said.

With the year-end holiday shopping season that determines retailers annual fortunes upon us, the consumer obsession with bargain hunting continues to place pricing pressure on retailers.

Its no secret that the retail landscape has been a dynamic one, in some cases challenging [] Were potentially over-stored, said Feingold, who followed footwear and apparel as an analyst before covering airlines at the start of his career at Fidelity in the late 1990s.

While this promotional environment at department stores can crush many retailers, it neatly illustrates the opportunity in Feingolds quality growth category to buy brands that have stood the test of time, companies like Nike [], which are still growing their top line, 5-6-7%, he said.

Consumer discretionary stocks with a high weight in the Magellan Fund, records show, include Keurig Green Mountain, The Coca-Cola Company and Starbucks. Moving from drinkable to wearable, high-weight stocks include Nike and VF Corp, maker of Wrangler and Lee jeans and Vans and Timberland footwear are among its other popular brands.

For me as an investor, [brands like these offer a] powerful lesson over time because these companies tend to be all-weather, in that they endure in more challenging environments and yet still have room to grow organically and through acquisitions.

This they accomplish through global appeal [and] brand strength that bring stable, consistent returns on capital and steady earnings growth.

3. Dream Stocks on Cloud Nine

Weve talked about the cheap stocks with improving fundamentals and quality themes, Feingold summarized, but the fund also has exposure to technologydigital advertising, cloud computing, said Feingold in a bit of an understatement.

In the digital advertising area, Google and Facebookboth are top 10 portfolio holdingstogether make up some 6% of the portfolio.

Cross-category Google, as well as Microsoft, Rackspace Hosting, Salesforce.com and Amazon bear some of the portfolios cloud computing weight.

While these are todays glamour stocks, Feingold is candid about the potential pitfalls of these kinds of secular growth stocks:

Theyre more expensive. The hit rates can be a little bit lower. But with the help of our research team, the hope is if you find the right companies the consistency of the outperformance [can be] truly great.

Over at least the past three years the returns Ive produced has been reflective of that, added the benchmark-beating fund manager.

Magellans best-performing stock in the past quarter brought a burst of investor return that is more typically confined to the venture capital space, but it points to the special opportunities a fund company of Fidelitys size can provide its shareholders.

Mobileye, an automotive firm based in Israels capital, Jerusalem, is pioneering technology that can automatically steer cars away from other vehicles or pedestrians, holding forth the promise of safe cell phone calls or lipstick application behind the wheel.

The companys IPO in Q3 brought Magellan returns in the 400% to 500% range, but what is interesting is that Fidelity got in on the action years ago, owning the company as a private investor. Establishing relationships with fast-growing private companies is a relatively new phenomenon, and account for less than 1% of the mammoth fund.

The investment speaks to a real opportunity over past few years, which Feingold said exemplifies the funds willingness to wait several years [] to really think long term and to use liquidity and volatility to our advantage, he said.

Feingold also suggested that Mobileyes recent success points to a longer-term theme: While the auto industry has had its challenges, one area that is growing fast is safety features and elements of driverless cars.

Besides Mobileye eyeing this sort of technology, records show the Magellan portfolio also holds Google, which is developing autonomous car prototypes, and Tesla Motors, which has announced plans to develop autonomous steering, breaking and parking systems.

While Feingold day in and day out [scours] the universe, looking for dislocations between fundamentals and market price in his three categories of growth stocks, he will occasionally find what he calls Nirvanaa stock that has characteristics of secular growth, opportunistic growth and quality.

Biotech is a great example, he said. Despite having a great 2013 and taking a hiccup in the beginning of March when the sector sold off quite dramatically and rapidly, [some of] these stocks [] recovered [] more than the ground they lost.

Gilead Sciences, Amgen and Biogen Idec are three biotech firms prominent in the Magellan portfolio, some of which exhibit scarce growth, some quality, but Feingold singles out Gilead Sciences as a stock through which investors can achieve nirvana.

Gilead has all three [of his growth categories] selling at less than 10 times earnings; strong, cheap and still growing fast.

The biotech sector in general is characterized by companies that are growing at above-average rates.

Yes, theyre capital intensive in the early part of the cycle, but Biogen and Gilead already paid for the drugs, he said.

The Magellan manager admitted to having been nervous during the sectors March sell-off, but the resulting nirvana, which he calls a rare occurrence in a portfolio managers career, is the reward for enduring that kind of experience.

Going forward, Feingold is upbeat about 2015. While he eschews macro-analysis, he sees U.S. companies as cash strong, and regards the weakness of stock alternatives as providing a tail wind to equities.

While valuations are not cheap anymore, I dont think they are egregious in a historical context, given yields in other asset classes, he said, adding: Im reasonably optimistic.