Magellan Fund Cuts Its Bond Assets in August
Fidelity Investments’ Magellan Fund cut its bond holdings in August back to levels it held before former manager Jeffrey Vinik went on a bond-buying spree that hurt the returns of the world’s largest mutual fund.
The bond holdings in August were the lowest since November, and one analyst said the fund’s new manager, Bob Stansky, reduced the bond position further in September.
The summary of the fund’s August holdings, posted Monday on Fidelity’s World Wide Web site, showed Stansky also raised Magellan’s cash reserves and technology stock holdings.
The $53-billion fund pared its bond position, mostly U.S. Treasury securities, to 11.8% of the portfolio as of Aug. 31, from 15.6% on July 31, according to the report.
By comparison, Magellan had about 19.4% of its assets in bonds in February during a time when the U.S. stock market was rallying and Vinik was overseeing the fund. Vinik left Fidelity in June to start his own firm.
Magellan’s cash weighting was boosted to 4.2% on Aug. 31, from 1.5% on July 31, according to the Fidelity report. The fund also increased its holdings of technology stocks in August to 6.7% of the overall portfolio, from 5.5% at the end of July.
Magellan’s performance is improving, though it still ranks near the bottom of “growth” stock funds, and investors continue to move money out of the fund.
Another Big Buy: New England Investment Cos. has made its second big purchase of a mutual fund group in roughly a year, agreeing to pay $95 million for Jurika & Voyles, an Oakland firm with $5 billion in assets. The purchase, expected to close in early 1997, will raise New England’s asset base to $91 billion, with nearly a quarter of that in mutual funds.
The purchase price could include an additional $15 million if certain goals are met.
Last year, the Boston firm bought Harris Associates, which runs the $9-billion Oakmark family. Other mutual fund nameplates under its banner include Loomis & Sayles, Reich & Tang and the New England Funds. The firm is a publicly owned limited partnership whose shares trade on the New York Stock Exchange.
Jurika & Voyles’ management team will maintain its investment independence and continue to operate from Oakland.
Court Passes on Schwab Case: Charles Schwab & Co., the nation’s largest discount brokerage firm, on Monday escaped a legal challenge to its controversial practice of selling customer stock orders to wholesale dealers.
The Supreme Court refused to consider a Minnesota lawsuit by three Schwab customers who sought damages in an assault on “payment for order flow” transactions.
The justices, without comment, declined to review a Minnesota Supreme Court decision last April that said the Schwab customers couldn’t obtain refunds of the wholesaler payments.
“Decisions with such a reach are for the SEC and Congress,” the Minnesota Supreme Court said.
Although routine in the securities business, payment for order flow has become controversial. Wholesale dealers pay a retail broker such as Schwab a penny or two a share for customer orders, then complete the orders internally in large blocks of stock rather than on an exchange.
Critics such as the New York and American stock exchanges say the order-flow payment gives retail brokers an incentive to accept customer orders based on how much wholesalers will pay. Both the NYSE and Amex have prohibited the practice, which is permitted by the Securities and Exchange Commission as a competitive tool.
Schwab, along with several other discount brokerages, still faces customer suits in five other states, including California.
Merger Results in Confusion: The merger of Twentieth Century Mutual Funds with the Benham Group, announced last year and finalized last month, has resulted in a somewhat confusing mix of minimum investments for portfolios within the combined family.
Most stock and bond funds now carry a $2,500 minimum for regular accounts and $1,000 or individual retirement accounts and gift-to-minors accounts. But the Twentieth Century International Discovery Fund has a $10,000 threshold for all three types of accounts, and the family’s tax-free bond funds require $5,000 for each type. Money market funds have a $1,000 minimum for IRAs, but it’s $2,500 for regular accounts and accounts for minors.
Other exceptions include Twentieth Century Premium Reserves, which mandates a $100,000 minimum, and Twentieth Century Giftrust, which requires just $500. Giftrust, incidentally, is the only Twentieth Century or Benham portfolio for which investors can’t exchange shares for other funds.
Making things more complicated is that most of the Twentieth Century and Benham funds drop their minimums, typically to $1,000, for shareholders who agree to make ongoing investments with money pulled from a checking account. Exceptions include the Giftrust and Twentieth Century Emerging Growth stock portfolios, along with most bond funds.
Fortunately, the merger has resulted in a single phone number, (800) 345-2021, that people can call for information on any of the funds.
Scudder to Get Into Discounts: Scudder, Stevens & Clark Inc. said it is planning to start a discount brokerage by the end of the year, joining other mutual fund groups in the mounting battle with Wall Street for investors’ money.
Scudder, which today manages more than $100 billion in assets, may be late to the party. Rivals Fidelity Investments, Vanguard Group and T. Rowe Price Associates Inc. already offer such services, and it may be difficult for Scudder to attract new brokerage customers in the face of such competition, analysts said.
