You don't read much about the giant Magellan fund these days -- and you can bet that's just how Fidelity Investments wants it.
This month marks two years since Bob Stansky was named to run the world's largest mutual fund, and this straight-arrow has Magellan running ahead of the Standard & Poor's 500 this year and just slightly behind it for the past 12 months. It is an impressive accomplishment for a fund manager lugging around $73 billion in assets.
"He's doing a very good job considering the size of his fund," says William Dougherty, president of Kanon Bloch Carre, a Boston mutual fund consulting firm.
But if Stansky has cleaned up the shipwreck left behind by his predecessor, riverboat gambler Jeff Vinik, he has yet to convince even his fans that he can do what an active manager is paid to do: beat the market by enough over time to earn his fees.
Even after Fidelity closed the fund to new investors in September, the problem remains the same -- Magellan's size.
Eric Kobren, the best known of the Fidelity watchers, gives Stansky an A-minus for his first two years on the job, but still is not recommending it to the readers of his newsletter, Fidelity Insight. "Of course, I would prefer a smaller, more nimble fund," Kobren says.
More than anything, Stansky has succeeded in making Magellan more predictable, abandoning Vinik's big sector bets -- and getting America's Mutual Fund out of the headlines.
Over the first six months, Stansky slowly abandoned Vinik's bond position, which made up nearly 20 percent of the fund. He moved from value stocks to growth stocks. The size of the fund has forced him to move Magellan to more large-cap stocks than at any time in its history. He has also beefed up Magellan's international exposure, trimmed the number of stocks in his fund by about 10 percent, and slowed to a walk Vinik's hectic pace of turning over his portfolio.
The market has rewarded Stansky's shift into large-cap growth stocks. Magellan is up 15.08 percent this year compared to 14.66 percent for the Standard & Poor's 500 index; it is trailing the index just slightly, 33.58 percent to 34.33 percent, for the last year. He remains significantly behind the index, 58.31 percent to 71.57 percent, since June 1996 when he took over the fund, in large part because of Vinik's bond position.
The big question for Stansky: What happens if large-cap stocks fall out of favor? This isn't a fund that is going to be able to shift into small- and mid-cap stocks.
The Stansky critics say that he has been able to keep pace with the S&P; index because he has turned Magellan itself into an index fund -- with fees that are about twice what index funds charge.
"It is a modified index fund and that is pretty smart when you have a fund that big," says David O'Leary, president of Alpha Equity Research in Portsmouth, N.H.
Stansky and Fidelity object to such characterizations.
Fidelity notes that less than half of Magellan's 478 holdings are included in the S&P;, and the fund's median market capitalization is $31 billion to the index's $41 billion. Stansky declined to comment for this story, but in Magellan's semiannual report to shareholders he disputed the Magellan-as-index-fund analysis.
"My goal is not to match the returns of the S&P; rather I want to beat the index over time," Stansky said in the report. "I won't do that mirroring the investments of the index. I'll only do it by differing from the index."
If there are differences, there are a lot of similarities, too.
His technology, health and energy weightings are similar to the S&P; he has underweighted the pricey financial sector and is light on nondurable and utility stocks. General Electric and Microsoft are the No. 1 and No. 2 holdings of both Magellan and the index. Most of the fund's top 10 holdings are prominent in the index.
"His job comes down to which of the 50 largest stocks will outperform," says Russ Kinnel, Morningstar's equity funds editor. That is a pretty limiting game."
With the turmoil of the last few years, it is easy to forget just what a spectacular fund Magellan has been over time.
Dougherty, the fund consultant, notes that Magellan marked its 35th birthday this month. An investor who put $10,000 in the S&P; 500 in May 1963, when Magellan was born, and left it there would have done well, Dougherty says. That investment would be worth $520,532 today.
A Magellan investor would have done better. That same $10,000 would be worth $8.7 million.
Pub Date: 5/17/98