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Under Stansky, Magellan likely to sell its bond holdings

NEW YORK — NEW YORK -- Bob Stansky, the new manager of Fidelity Investments' $55 billion Magellan Fund, had better outperform the Standard & Poor's 500 stock index -- and fast, said Michael Lipper, president of Lipper Analytical Services Inc.

"If the average growth fund is up by 10 percent, he will need to be up 12, 13, 14 percent," said Lipper.

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What if the 39-year-old Stansky fails to top the performance of the benchmark equity index on a consistent basis?

"I imagine he will be replaced," said Lipper, who founded his company 23 years ago and is regarded as a dean of the $3 trillion mutual fund industry. "Fidelity is a performance-driven organization."

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Welcome to the caldron known as the Fidelity Magellan fund, Mr. Stansky.

Stansky, already a respected Fidelity fund manager, toiled in relative anonymity for the past 13 years at the company. Now, he is on the hottest seat in the industry.

On Thursday, Boston-based Fidelity, the nation's largest mutual fund company, put Stansky at the helm of the largest U.S. mutual fund after its manager, Jeffrey N. Vinik, quit.

The announcement followed six months of controversy at Magellan. The clamor centered on Magellan's sub-par returns and bad investments, redemptions of as much as $1 billion during the past two months and lawsuits against Fidelity and Vinik.

After Stansky takes over June 3, Magellan will drop from the ranks of U.S. mutual funds' biggest bondholders, analysts said.

Vinik had assembled a bond portfolio worth about $12 billion as of March 31. That would make Magellan, the world's biggest mutual fund, one of the largest U.S. bond funds, even though it considers itself a stock fund.

"I expect he will liquidate the bonds," said Andrew Lohmeier, analyst at Morningstar Inc. in Chicago. "His style is to be fully invested and he doesn't buy bonds."

Stansky would probably use the proceeds from bond sales to boost Magellan's stock holdings in industries such as computers, semiconductors and software, analysts said.

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"I think you will see Magellan buy $10 billion of technology stocks in the next 90 days," said David J. O'Leary, a former institutional salesman at Fidelity who now helps run a brokerage firm in Portsmouth, N.H.

Stansky might buy stocks such as Microsoft Corp., Hewlett-Packard Co., Cisco Systems Inc., International Business Machines Corp., Intel Corp. and Dell Computer Corp., O'Leary said.

Lipper said Fidelity analysts would begin to look at Stansky's performance at Magellan by the third quarter of this year.

Stansky will make an impression at Magellan early by "buying classic growth stocks," meaning "companies with rising earnings."

"When he doesn't have good ideas, he's in cash," said Lipper.

Vinik, who's leaving Fidelity to start Vinik Asset Management, began investing in bonds late last year. That wager hurt the fund's returns this year, as the Treasury's benchmark 30-year bond rose almost one percentage point.

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Stansky never bought bonds for the $7.5 billion Fidelity Growth Company Fund, which he manages, Lohmeier said. That has helped him record a much better performance so far this year than Vinik.

His fund has climbed 12 percent compared with Magellan's 4.68 percent, below the Standard & Poor's 500 Index's 11.14 percent gain and the 12.64 percent increase in the average U.S. growth stock fund, according to Lipper Analytical Services.

Last year, it returned 36.8 percent, compared with 37.6 percent for the S&P; 500. As of May 16, Magellan ranked 637th of 648 growth stock funds tracked by Lipper this year.

Under Stansky, the Growth Company Fund ranks No. 36 of 240 growth stock funds tracked by Lipper over the past five years. It has risen an average of 18.24 percent a year in the period.

"I'm going to run Magellan the same way I've run money for the last nine years -- in the classic Fidelity way, with a bottom-up, stock-by-stock approach," Stansky said.

As a result, Magellan may start to look more like it did under money management star Peter Lynch, who managed the fund for 13 years and racked up average returns of 29.2 percent a year -- almost double the 15.8 percent rise in the Standard & Poor's 500 index.

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"Stansky has his own record of being a good stock picker, and that's true to the Peter Lynch mode of investment," said Jeff Kelley, associate editor at Morningstar.

Lynch, who managed both Stansky and Vinik, said Stansky's approach may be a bit more like his own, which incorporated the suggestions and ideas of other managers and analysts along with his own research.

"It might be that Bob is wide open to new ideas, too," he said. "Jeff was a little more wanting to do it himself. He was proactive rather than reactive."

Lynch also said he normally had 50 percent to 60 percent of the fund's money in growth stocks, and Stansky will probably take a similar approach because he favors those areas.

Magellan had 5 percent of its assets in technology shares at the end of March. About half the assets were in areas such as energy, autos and basic industries, including industrial machinery and equipment. The fund's bond holdings represented about 20 percent.

Vinik's top 10 holdings in Magellan include Chrysler Corp., General Motors Corp., Deere & Co., Conrail Inc. and CSX Corp. -- so-called cyclical companies, whose earnings increase fastest as the economy improves. Chrysler is the only one that also ranks among Stansky's top 10 holdings.

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Along with technology stocks, Stansky may buy more finance and health-care shares for Magellan. His Growth Company fund has 21 percent of its assets in technology stocks such as US Robotics Corp., a maker of computer modems; about 13 percent in finance companies, such as American Express Co.; and 11 percent in health-care providers.

Stansky may also transform Magellan into a more diversified fund when he succeeds Vinik, analysts said. Technology shares made up 40 percent of the fund's portfolio last September.

"Jeff is much more of a sector player," said Eric Kobren, executive editor of Fidelity Insight, a Wellesley, Mass.-based independent newsletter that tracks the firm. "Bob is unlikely to make as big concentrated bets."

Pub Date: 5/26/96


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