While the mainstream financial media is watching Fidelity Magellan with an eye to its shrinking asset and whether Fidelity executives will reopen the flagship fund, they are missing the heart of the story for those in the industry.

Take an article that ran in MarketWatch Monday, for example. The article does break news, sort of. It quotes a Fidelity spokesman as saying that the Boston Behemoth currently has no plans of reopening the flagship fund to new investors.

If size was our focus, we would not have closed Magellan to new investors eight years ago,” Fidelity spokesman Vin Loporchio told MarketWatch. He added: “Our goal is to provide the best possible investment performance for our mutual-fund shareholders.” When asked, Loporchio said exactly the same thing to MFWire.

MarketWatch provides no explanation for why Fidelity won’t reopen the fund (neither would Loporchio). In fact, MarketWatch quotes Jim Lowell, editor of Fidelity Investor, saying that reopening the fund would bring Fidelity additional fees and help it recapture business loss to rivals.

But Lowell’s points may not be so important to Fidelity and the fund firm may have another reason for retaining the lid on Magellan. Reopening what was once its biggest stock fund would eclipse its efforts to change direction. Over the course of the past year, Fidelity has made a number of moves that suggest it is focusing on capturing assets rather than increasing asset management fees.

Case in point. Last month, Fidelity launched a new share class for its index funds dropping the expenses on those funds below the expenses on the rival funds from Vanguard. That was just the latest shot in the price war Fidelity started with Vanguard last year. Obviously, Fidelity saw Vanguard’s success with index funds and wants a slice of that pie.

If Fidelity were to reopen Magellan, it would overshadow its efforts to build its index funds product line, as every financial reporter would rush to cover the Magellan story.

MarketWatch also seems to have overlooked a bigger story. MarketWatch does acknowledge that Fidelity is having problems with its flows. It even quotes Geoff Bobroff, the ubiquitous fund industry consultant, as saying that “their flows for several years have been quite anemic.”

It adds that Vanguard ranks second in net flows in 2005.

So, months after declaring war on Vanguard by dropping fees on its index funds, it looks like Fidelity has yet to outsell its rival. Could that be the real story here?  

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