Judge a mutual fund on its performance, not on the reputation of its manager


May 31, 1992|By WERNER RENBERG | WERNER RENBERG,1992 Werner Renberg

When Morris Smith decided to devote more time to his family and quit as portfolio manager of the $20.4 billion Fidelity Magellan Fund July 1, he did more than raise eyebrows among his shareholders -- he set off a series of changes in Fidelity's equity fund lineup.

To succeed Smith, Fidelity management chose Jeffrey Vinik, portfolio manager of Fidelity Growth & Income Portfolio. He has been succeeded by Andrew Midler, portfolio manager of Fidelity Equity-Income II Fund, who had been succeeded by Brian S. Posner, portfolio manager of Fidelity Value Fund, who has been succeeded by Richard Fentin, portfolio manager of Fidelity Puritan Fund, who -- is staying put. He just picked up another fund.

Sound familiar?

It was only two years ago that Smith, then portfolio manager of Fidelity OTC Portfolio, succeeded the retiring Peter Lynch at the helm of the largest U.S. equity fund and was replaced by Alan Radio.

It was also in 1990 that Beth Terrana moved over from Growth & Income to succeed Bruce Johnstone as manager of Fidelity Equity-Income Fund, when he became chief investment officer of Fidelity's British affiliate. The G&I opening was filled by Vinik, who had been running Fidelity Contrafund, which William Danoff then took over.

If you're in one of the funds involved in the current managerial changes, you may wonder whether and how a change could affect your holdings and what, if anything, you should do.

Given the importance of investing in a fund whose objectives match yours and the recent showings of managers, such as Smith, who have compared favorably with their predecessors, it may make sense to stay, instead of following a manager to another fund with different policies. Watch how well the successor keeps up with the momentum.

If you are thinking of making an initial investment in any of them and are studying the performance record for, say, the last five years, you may have a problem: How do you look at a record that has been primarily, if not totally, achieved by people no longer running the portfolio?

Only six of the 19 diversified Fidelity equity and balanced funds that have been in operation at least five years have been managed by the same person for that long. (The long est tenure: Barry Greenfield's 10 years at Fidelity Fund.) Of 35 Select, or sector, funds, 32 have been in operation at least five years. Only three have been managed by the same person for that period.

What do you do?

Look at a fund's performance regardless of who made the record, says William J. Hayes, senior vice president of Fidelity Management & Research Company, who supervises all Fidelity equity funds.

Hayes acknowledges that you might prefer to invest in a fund whose manager has been a leading performer and remains in charge.

But, while conceding that some of his managers may have disappointed him, he expresses confidence in the ability of the newly reassigned people to flourish -- even when implementing different policies.

He says that he has been pleased with the way new managerial assignments have worked out in recent years.

For this, Hayes gives credit, in baseball jargon, to the strength of his "farm team" and, thus, to the company's system for identifying, recruiting and developing prospective portfolio managers.

Every year, Fidelity portfolio managers and senior analysts go to major business schools to see 150 students. From those invited to the Boston head office for intensive interviews, six MBAs are culled out for offers in the hope of hiring at least four.

"We're looking for self-starters -- an eclectic mixture of people with all sorts of backgrounds," Hayes says. "We're looking for good stock pickers. We hope that everybody we hire

will be another Lynch."

New hires typically are assigned an industry. They visit companies and industry analysts at securities firms, participate in discussions when company executives come to Fidelity's offices and write reports for the managers.

After a stint as an analyst, a promising prospect can become manager of a Select fund. "It's much easier than being manager of a diversified fund," Hayes points out, "because you're not concerned about overweighting or underweighting a particular industry."

Those who prove themselves become assistant portfolio managers of diversified funds and, eventually, managers. Once they are managers, they advance by managing more money.

New team at Fidelity

Managers of Fidelity's largest equity and balanced funds*

.. .. .. .. .. .. .. .. .. ..Net. Assets**..Portfolio

Fund.. .. .. .. .. .. .Type..(Billions).. ..manager.. .. ..Since

Magellan (3% load).. .. ..G.. .. .*20.4.. ..Jeffrey Vinik.. ***1992

Puritan (2%).. .. .. .. .E1.. .. .. 5.4.. ..Richard Fentin.. ..1987

Equity-Income (2%).. .. .E1.. .. .. 4.6.. ..Beth Terrana.. .. .1990

Growth & Income (2%).. ..G1.. .. .. 4.0.. ..Andrew Midler.. .. 1992

Retirement Growth (NL).. CA.. .. .. 1.9.. ..Harris Leviton.. ..1992

Asset Manager (NL).. .. .FX.. .. .. 1.8.. ..Robert Beckwitt.. .1988

Growth Company (3%).. .. .G.. .. .. 1.4.. ..Robert Stansky.. ..1987

Fidelity (NL).. .. .. .. G1.. .. .. 1.3.. ..Barry Greenfield.. 1982

Contrafund (3%).. .. .. ..G.. .. .. 1.2.. ..William Danoff.. ..1990

Balanced (NL).. .. .. .. .S.. .. .. 1.1.. ..Robert Haber.. .. .1988

Cap. Appreciation (3%).. CA.. .. .. 1.1.. ..Thomas Sweeney.. ..1986

OTC (3%).. .. .. .. .. ..SG.. .. .. 1.1.. ..Alan Radio.. .. .. 1990

Overseas (3%).. .. .. .. IF.. .. .. 1.0.. ..James Lyle.. .. .. 1992

Equity-Income II (NL).. .EI.. .. .. 0.9.. ..Brian S. Posner.. .1992

Trend (NL).. .. .. .. .. .G.. .. .. 0.9.. ..Alan Leifer.. .. ..1987

* Excluding funds not generally available to individual investors

** As of April 30, 1992

*** Effective July 1. Vinik is working with Morris Smith until then.

NL = No load. CA = Capital appreciation; G = Growth; SG = Small company growth; G1 = Growth & income; EI = Equity income; IF = International; FX = Flexible portfolio; B - Balanced.

SOURCES: Fidelity Investments; Lipper Analytical Services.

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