| TIME Magazine
JUNE 3, 1996 Volume 147, No. 23
MAGELLAN'S NEW DIRECTION
Steady Robert Stansky replaces the
controversial Jeffrey Vinik at the nation's
biggest mutual fund
JOHN GREENWALD
Jeffrey Vinik, manager of the $56 billion Fidelity Magellan
Fund, the world's largest and most closely watched mutual fund,
"beat the pants off the managers of other large funds," in the
words of one analyst. Yet few people were surprised last week
when Vinik simply beat it, abruptly resigning from FMR Corp.,
Fidelity's owner. His replacement is Robert Stansky, until now a
low-profile manager of Fidelity's Growth Company Fund.
While Vinik, 37, and the company denied that he was
pushed--and he most likely wasn't--the aggressive manager
had made the classic mistake of zigging when he should have
zagged. Last year he dumped stocks and bought bonds even as
the stock market routinely hit new highs. Although Vinik's
record of a 17.2% average return over nearly four years bested
most of his competition, Magellan's 4.3 million shareholders
fidgeted as the fund returned just 2.4% on an annualized basis in
the first four months of 1996, while the Standard & Poor's index
of 500 stocks, the gauge by which mutual-fund managers are
measured, returned 6.9%. Worse, at the end of April the tepid
showing had caused Magellan's average growth over three years
to trail that of the S&P 500 for the first time in Vinik's tenure.
"If you lag behind the index over three years, you can expect to
be out of there soon," says Jack Bowers, who edits the Fidelity
Monitor, a newsletter that tracks Fidelity.
In fact, Vinik had become a lightning rod for the public's
perception of problems at Fidelity, a $442 billion cash machine
based in Boston, whose 238 mutual funds command a leading
13% share of the U.S. fund industry. Late last year Vinik drew
the attention of the Securities and Exchange Commission for
publicly touting computer maker Micron Technology while
Magellan quietly unloaded its Micron shares. This year Fidelity
shuffled no fewer than 26 fund managers in March to perk up
the funds' performance.
Vinik, who plans to start his own investment company called
Vinik Asset Management, told TIME that he decided to leave
"in the past couple of weeks," after lengthy talks with his wife.
"It was a family decision," he explains. Up until now, he says, his
extended and successful stay at Fidelity had allowed him to
spend "good quality time" with his three children. He claims to
look back with satisfaction, having met a personal-performance
goal by consistently topping the S&P 500 index. "With 20/20
hindsight," he concedes, "I wish I hadn't bought bonds when I
did." Sounds just like the rest of us amateurs.
The grueling job now passes to Stansky, 40, a highly regarded
Fidelity veteran who has headed the $17 billion Growth
Company Fund since 1987 and achieved healthy returns of
16.1% a year, including an 8.8% increase in the first four months
of 1996. The two managers are a study in contrasting
philosophies. Whereas Vinik made sweeping bets on entire
sectors of the economy, like technology, Stansky methodically
studies individual companies and favors blue-chip stocks over
the small- and medium-size companies that Vinik preferred, in
the manner of his mentor Peter Lynch. "Stansky will be a good
fit," says Don Phillips, president of Morningstar, which tracks
mutual funds. "What was always a little difficult for Vinik was
that he was trying to run Magellan as if it were a smaller, more
flexible fund." Stansky's approach promises less volatility in the
performance of the fund. That's not a bad idea, since Magellan is
fighting to stay high on the list of pension managers. The fund
gets 90% of its new money from 401(k) plans.
Some experts say Magellan may have grown too large and
unwieldy for anyone to run effectively these days. Others point
to its high profile. "The problem with Magellan is that it's too
famous, and the scrutiny you're under is almost unbearable,"
says Phillips. "Your every move is second-guessed."
--Reported by Sam Allis/Boston and Jane Van Tassel/New York
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| Well Magellan is affecting all the markets today. As expected,
the new manager of this fund is unloading bonds which Vinick
had bought up last year. The news is today Magellan is unloading
a large amount of 10-year bonds.
This is lowering prices on all the bonds, with the 30-year
yield crossing back above the 7% level intra-day. And
of course when interest rates go up, the stock market goes
done, which is exactly what's happening .....
However I see this as a possible good sign as the proceeds from
the sale of bonds has to go somewhere. That means either Magellan
is increasing it's cash position, ..... or will be increasing it's
position in stocks .....
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