Stansky's exit restores relevance to Magellan

Your Funds

November 06, 2005|By CHARLES JAFFE

In announcing his retirement Monday, Robert Stansky was able to momentarily do something for the Fidelity Magellan fund that he mostly failed to do in his decade at the helm.

He made Magellan relevant again.

Once the world's largest stock mutual fund, Magellan isn't even the largest fund in its own shop these days. Once the picture of the kind of performance that active management could deliver, Magellan is now the poster child for why many investors feel strongly about indexing.

Once the symbol of Fidelity itself - as Magellan went, so did the company's other funds - today it has become something of an anachronism within its own house, the kind of issue that Fidelity would not start up today if it were adding to its lineup.

So while investors searched for message, meaning and hope in Monday's management changes, the real story is why a change at the helm at Magellan has gone from big news to legitimate yawn, and whether investors should care about what happens next at this once-great fund.

The Magellan story felt a bit like management changes at Bethlehem Steel Corp. in the 1990s. BethSteel had been a corporate titan, a key member of the Dow Jones industrial average and the picture of industrial America, but it had been floundering.

Magellan has been the fund world's Beth Steel for years, a dinosaur with a reputation built more on past glories than present realities.

Personally, I find it a bit sad, as Magellan was the first mutual fund I ever purchased, back when I was in college and Peter Lynch was at the helm (I sold the fund in 1994, a condition of employment for becoming mutual funds columnist at The Boston Globe).

Magellan built its reputation on great stock picking. Company chairman Ned Johnson actually cut his teeth at the fund, and clearly delivered the best performance of anyone to skipper Magellan, the legendary Lynch included.

But Lynch got the job because he was Fidelity's best stock-picker; when his successor, Morris Smith, left after a short tenure, the firm again turned to its best stock-picker, Jeff Vinik, to run Magellan.

Vinik's tenure was marred by a decision to move into bonds. It wasn't the wrong call - it was just early - but industry watchers hammered Vinik and Fidelity for declining returns. They didn't care that it was the manager's best judgment, they only cared that losses occurred because the manager left Magellan's normal investment zone.

Stansky was not necessarily Fidelity's best stock-picker when he took over from Vinik (that title arguably goes to Will Danoff, manager of Contrafund; Fidelity watchers agree that Monday's news would have been much bigger had it been Danoff who was calling it quits).

What he learned from watching Vinik was what not to do in his new job. Specifically, he never varied from the script; he managed by a playbook that seemed destined to make Magellan perform no better than the Standard & Poor's 500 index.

Now Magellan shareholders get Harry Lange, who is a very good manager by any measure, but still not Fidelity's best stock-picker (of course, Danoff runs a bigger fund these days).

He most likely will come in and shake things up (which could have some tax consequences for Magellan shareholders); he almost certainly will not play things as safe as Stansky, though he won't be allowed to mess things up at the firm's flagship. He won't be moving the fund into bonds any time soon, and performance is likely to remain fairly close to the S&P 500, maybe better or worse but not too far afield.

Charles Jaffe is senior columnist for MarketWatch. He can be reached by mail at Box 70, Cohasset, MA 02025-0070.

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