Will closing Magellan Fund prove a wise move in the long run?

The Outlook

September 28, 1997|By Samantha Kappalman

FIDELITY is closing its giant Magellan Fund to new investors on Tuesday. The $62 billion fund will still be open to hundreds of thousands of investors -- those who already own shares and participants in most group retirement plans where the fund is an existing investment option. Indeed, 401(k) plans account for more than 60 percent of Magellan's 4.3 million shareholders, and 73 percent of its assets are in retirement accounts.

Magellan was the top performing fund over the last 20 years, but most of that came before the 1987 crash. According to Lipper Analytical Services, Magellan ranked 32nd among all growth funds for the 10 years from Sept. 3, 1987, to Sept. 4 of this year, and 90th for the last five. Its lagging performance under Jeff Vinik prompted Fidelity to replace him with Robert Stansky, whom many credit with revitalizing the fund. Closing Magellan will help prevent Stansky from being flooded by huge inflows that could make the fund even harder to manage. Even so, many Magellan watchers say the fund is not worth the 3 percent "load" -- or sales charge -- it imposes.

Is closing Magellan a smart move? Can it help get returns back to where they were in the late 1980s and early 1990s?

Jack Bowers

Editor, Fidelity Monitor, Rocklin, Calif.

I don't think that the closure will have any significant bearing on long-term performance. It will not help or hurt the fund.

Fidelity is doing this to blunt criticism that Magellan is too big to manage efficiently. Ninety percent of new money has been from 401(k) and that will keep coming.

New investors haven't been investing because of the 3 percent load.

I think it's possible to get the returns back -- Magellan was large then, too. Stansky's focus is on stocks and picking good companies -- that will be a good strong match for Magellan.

It will be a good long-term investment in the next 10 years, but it won't be at the top of its peer group as it has been in the past.

I don't think it's worth it for a 3 percent load, but it's the best equity choice for 401(k) available. If somebody wants the option, take the IRA and stick $500 in Magellan. That way they have a minimum position that they will be able to add on to later.

Eric Kobren

Executive Editor, Fidelity Insights, Wellesley Hills, Mass.

I don't think there's anything broken. We do have a hold on the fund. We do think it's a large fund, but not too large to maneuver.

It has not been a difficult market, so size has not hurt us under Robert Stansky. Many people would want a more flexible fund in a rough market.

Many people equate the fund's performance in the last 20 years with what it will be in the next 20 years -- it's very, very, very unlikely that it will be able to duplicate its record.

It's highly unlikely that it will get returns back to where they were, but that doesn't mean that it's bad. Most would be tickled to beat the S&P 500 index by a couple of

points.

It won't be a stellar performance the way it was 20 years ago.

A. Michael Lipper

President, Lipper Analytical Services, Summit, N.J.

It's not broke. The fund has been doing better than its competition for probably the last six months. I think that the closing has everything to do with this particular manager, these particular shareholders and this particular market.

It's not a general presence at all. I think this fund in some period of time will be worth $100 billion by itself.

I think if the market favors the kinds of securities that this manager has great strengths in, then yes, the returns could get back to where they were in the late '80s. If it favors others, then no, they won't.

Bob Stansky is a good investor in mid to large growth companies. These areas have had good performance during various periods.

I think the closing is an important recognition of the enormous expectation that flows out of the salary savings plans, like the 401(k) plans.

It is a recognition that this fund has become a retirement fund or an important equity component to a large amount of people's retirements.

Russ Kinnel

Equity Editor, Morningstar Mutual Funds, Chicago

I don't think the closing will have a big impact on the fund because it's in so many 401(k) plans. All of those people can keep sending new money. If it does well, it will still be a big influence.

Maybe it's minor or maybe it's symbolic news. It might get a slight bit more stable, but on the whole I don't think this is a big deal.

It has an uphill struggle and this won't do anything big to it.

Fidelity itself has a massive amount of assets in domestic stocks and they also result in struggles.

I wouldn't bet on it getting returns back to where they were in the late '80s and early '90s.

Pub Date: 9/28/97

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