Is Magellan Turning Bearish on Tech? : Securities: The Fidelity fund’s manager has been publicly bullish on certain holdings but has cut its stake them.
Jeffrey Vinik, the influential manager of Fidelity Magellan, the largest U.S. stock mutual fund, has been publicly bullish on one of his big technology holdings, Micron Technology Inc., but has been quietly selling most of the fund’s stake in the company, according to confidential Fidelity trading data obtained by the Washington Post.
In October and November, Vinik sold most of the fund’s shares in communications and electronics giant Motorola Inc. and three of the biggest semiconductor makers, Micron, National Semiconductor Corp. and Alliance Semiconductor Corp. Fidelity Magellan does not disclose such trades, but investors eventually will be able to glean the trading activity from the fund’s periodic reports to shareholders and regulators.
Motorola and Micron were the third- and fourth-largest holdings in Fidelity Magellan’s $53-billion portfolio at the end of September.
Publication of this story in the Post on Friday led investors to sell some of the shares mentioned. Micron Technology fell $2.375 to close at $51.875, Motorola lost $1.125 to end at $60.375 and National Semiconductor declined 37.5 cents to $21, all on Friday trading on the New York Stock Exchange. Alliance Semiconductor fell $2.875 to close at $19.625 on Nasdaq.
In a third-quarter report that Fidelity Magellan began mailing to shareholders in early November, when some of Vinik’s heaviest selling was occurring, he said he still liked semiconductor stocks. He specifically mentioned Micron, which he called “still relatively cheap.”
Vinik declined a request to comment.
Jane Jamison, chief spokeswoman for Fidelity Investments, said: “Jeff’s report was a review of Magellan’s performance during the prior six months. He was interviewed in early October. What he said represented his views at the time. The fund’s holdings are always changing.”
Securities law prohibits manipulation of stock prices, but it is unclear whether these provisions would be applied to a fund manager who said one thing in public while doing something else in private, according to a Securities and Exchange Commission official.
“It depends on the facts of each case,” said the official, who was not speaking with knowledge of Fidelity Magellan’s trading.
“If the seller was a large shareholder and owned a significant position in a company and put out a positive statement about his investment to protect his position, that might rise to level of market manipulation. Is it a set of facts that would pique the curiosity of an SEC examiner? Probably. Is it manipulation? That is unclear.”
Vinik’s moves are watched by many investors because he has been so successful and his trading can move the market. Fidelity Magellan has returned 38% to investors this year, compared with 32% for the Standard & Poor’s 500 index, largely as a result of Vinik’s big bet on technology stocks.
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During the time Vinik was cashing out of these companies, their stock prices crumbled. Micron, for example, fell 40% between Oct. 1 and Nov. 20.
“Everyone [on Wall Street] is obsessed because they know that if they are on the wrong side of Fidelity, they are going to get hurt. If they are on the right side, they are going to get helped,” said David J. O’Leary, president of Alpha Equity Research Inc., a brokerage and research firm in Portsmouth, N.H.
In early October, Vinik told USA Today that he was still a bull, and said about his technology holdings: “The stocks are up, but so are the fundamentals. It’s very unlikely that I’d wake up one morning and decide to dump technology.”
But rumors of Vinik selling technology stocks have cropped up periodically on Wall Street, particularly when that sector, which had been very strong for much of the year, showed signs of flagging this fall.
Some Wall Street analysts said they saw evidence that Vinik was beginning to sell technology issues in the late summer, which they said was pushing down prices.
Fidelity Magellan told shareholders this month that its technology holdings were 40.2% of its portfolio at the end of September, compared with 42.1% in March.
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But the analysts said the decline in the technology sector also is the result of growing concerns that the near-term profit outlook for many of the companies is becoming uncertain because of a slowdown in the sale of personal computers.
Micron Technology was Fidelity Magellan’s third-largest holding, worth $934 million, at the end of September. Magellan and other Fidelity funds owned nearly 10% of Micron, making the mutual fund family the largest shareholder of the company.
The Fidelity Magellan trading data shows that between Oct. 1 and the first week in November, Magellan sold about 5.8 million shares of Micron, or roughly half its position. The selling in October was relatively light, 1.3 million shares, or about 11% of the position.
The pace picked up the first week of November, just as Magellan shareholders and the media were receiving Vinik’s third-quarter report stating his continuing belief in the technology sector. Magellan and other Fidelity funds accounted for about 12% of the trading volume during that week.
By the end of the third week of November, Vinik had sold 78% of the Micron position Fidelity Magellan held at the end of September. Between Sept. 29 and Nov. 20, Micron’s stock price fell from $79.375 a share to $48.875.
