The pay isn't shabby--perhaps $5 million a year or more. The resources are enormous: an army of research analysts and the latest investment technology at your disposal, plus a trading desk that can buy or sell thousands of shares without revealing your identity. Despite these advantages, it is becoming increasingly difficult to make the Fidelity Magellan Fund live up to its exemplary past performance. On June 3, Fidelity veteran Robert E. Stansky becomes the third manager to run Magellan since Peter S. Lynch's 13-year reign ended in 1990. He succeeds Jeffrey N. Vinik, 37, who left to launch his own firm.
The handoff comes at a potentially sticky time for the $56 billion fund--the country's largest-- which has lagged the stock market for the past eight months. That's because Vinik turned bearish during a raging bull market and, early this year, put 19% of the fund into long-term U.S. Treasury bonds. The bonds, coupled with a 10% cash position, amount to a major bet on a tumble in stock prices. So far, it hasn't happened. This year, Magellan is up 3.7%, vs. 9.3% for the Standard & Poor's 500-stock index.
That puts Stansky, who is expected to run the fund more like the $8 billion Fidelity Growth Company Fund he has managed since 1987, in a tough spot. If he sells the bonds, Magellan's 4.4 million shareholders will eat large losses. And if he leads Magellan into the kind of large-company growth stocks he is generally partial to, Stansky will be buying near or at record-high prices. Should the market tank, as Vinik has been anticipating, Stansky and his new shareholders will get burned.
Still, Magellan's last two manager changes resulted in major portfolio makeovers--and there's a good chance the same will happen under Stansky. Besides favoring a median market capitalization of $12.5 billion--Vinik's was $5 billion--Stansky hunts for companies with higher-than-average sales growth that may translate into good profit increases over two to three years. Vinik focuses on 6-to-12-month earnings gains. Stansky holds on to his stocks for one year on average; Vinik's turnover is closer to nine months. "Stansky is disciplined in his approach to investing," says Robert S. Meeder Jr., who runs the Flex-funds Muirfield fund of funds, which counts Stansky's Growth Company among its largest holdings.
Stansky's straitlaced management style should produce less controversy than Vinik's bold one. Stansky hasn't tended to move swiftly in and out of markets or sectors. Vinik slashed his technology holdings from 43% to less than 10% in 1995's fourth quarter alone. What got Vinik in hot water with many fund watchers was the huge bet on bonds--even though it is permissible under Magellan's charter. "Vinik was supposed to be an equity manager," says Robert J. Markman, whose Markman Capital Management Inc. invests in mutual funds. "If he were 100% in equities and underperformed, it wouldn't have been an issue."
Observers generally applaud Stansky's promotion. The 40-year-old manager has a solid reputation. "He's a guy who by personality is not going to play star. [He] should be able to handle the pressures," says fund maven A. Michael Lipper of Lipper Analytical Securities Corp.