Annual Mutual Fund Review & Outlook : Fidelity Magellan’s Manager Says This Year Will Be Tougher

Jeff Vinik may have made managing the nation’s largest stock fund look a little too easy in 1993.

The Fidelity Magellan fund, whose $30 billion in assets is nearly half again as large as the second-biggest fund, scored a 24.7% total return in 1993, more than double the 10.6% return of the average U.S. growth stock fund.

But Vinik is quick to warn that he doesn’t expect to repeat that performance in 1994. “This is going to be a tougher year for me than 1993,” he says. “I’m not a bear and I’m not a bull. I’m kind of neutral on the stock market now.”

For Vinik, “neutral” just means he’ll have to work that much harder to find decent stocks to fill out his huge portfolio, which usually contains 650 to 700 stocks.

Vinik says he scored big in 1993 on three fronts:

* Owning semiconductor stocks, such as Motorola, which rocketed on booming computer sales. * Picking smartly among blue-chips, especially industrials. For example, his rail and auto holdings jumped sharply, as did Sears and hospital manager Humana.

* Avoiding consumer products stocks, such as tobacco, drug and food issues, many of which plunged as they saw their product pricing power evaporate in 1993.

For 1994, Vinik says, he’s keeping a large bet on energy, especially natural gas stocks, because he believes the supply-demand equation will continue to improve.

He has trimmed some of his semiconductor holdings, but he won’t sell them out completely, he says. “I still think these stocks have a lot of life left in them over the next two to five years.”

He also remains positive on such tech names as disk drive maker Seagate and software firms Lotus Development and Computer Associates. He owns IBM as a turnaround.

Among industrials, he believes Caterpillar and some other Rust Belt giants are good names to own for the next three years but concedes they could stall short-term.

Overall, Vinik has Magellan skewed in favor of stocks that would benefit from a stronger U.S. economy. The classic slow-economy plays such as drugs and foods may look like bargains to some fund managers, but not to Vinik. He views their loss of pricing power as an ongoing problem.

So even if those stocks bounce higher in the short term, Vinik says, “I’m not going to buy bad (fundamental) stories.”