Magellan Chief Faults Old Mix
Fidelity Investments’ Magellan Fund manager, Bob Stansky, without mentioning his predecessor, Tuesday blamed Jeffrey Vinik’s large investments in bonds, cash and cyclical stocks for the giant fund’s dismal performance this year.
“That lack of firepower among the fund’s largest holdings somewhat limited its returns,” Stansky said in a question-and-answer interview published in Magellan’s semiannual report. Magellan is the world’s largest mutual fund.
Since taking the helm June 1 from Vinik, Stansky has slowly shifted the portfolio out of bonds and cash and into stocks.
At the end of September, the most recent period for which figures are available, Stansky had about 88.9% of the fund’s assets invested in stocks, 9.8% in bonds and 1.2% in cash, according to Fidelity. At the end of May, 19.3% of the fund was invested in bonds.
Stansky had 11.8% in bonds on Aug. 31. He has also boosted technology stocks to 10.1% of the overall portfolio, from 6.7% in August.
However, some analysts aren’t impressed. “I’m just amazed at how slowly he has moved,” said David O’Leary, president of Alpha Equity Research, a Portsmouth, N.H.-based firm that tracks Fidelity. “I think they’re just too pessimistic about the market.”
The poor returns are resulting in a high level of shareholder redemptions, said O’Leary. About $1 billion was pulled from Magellan in October and $3.8 billion has been withdrawn since the start of the year, he said.
A 20,000 Dow? America’s graying baby boomers will help push the Dow Jones industrial average to 20,000 in 20 years, an economist predicts.
Ronald Reuss, chief economist at Piper Capital Management in Minneapolis, says U.S. stock market trends can be predicted from what happened in Japan in the 1980s.
That’s when Japanese in large numbers hit peak saving years in their late 40s. The resulting flood of investment capital, more than any other factor, explained the dizzying ascent of Japan’s market at the time, Reuss says.
The U.S. demographic pattern is similar to Japan’s but it involves more people and is 10 years behind.
Besides, Reuss adds, a 20,000 Dow by 2016 represents an annual growth rate of only about 7%.
Bucking a Trend: The dollar has been one of the stronger currencies so far this year, but that hasn’t rekindled much interest among managers of international mutual funds to hedge their positions.
Only about a third of foreign stock funds utilize strategies that would protect them from a rising dollar, according to a study by fund tracker Morningstar. The remaining two-thirds are split among funds that occasionally hedge and those that never do.
A Small Warning: U.S. mutual funds investing in small companies aren’t providing as big a bang for the buck as they do in conventional investing wisdom.
A study shows it’s rare for a small-company fund to record top-tier results and at the same time stay true to its original investment charter--at least not for the long haul.
Research group Morningstar found that just five of the 27 small-company stock funds it started tracking in December 1985 were able to keep the same investment strategy and manager over the last 10 years.
Growth Funds Volatile: Growth-stock investing beats the rival value-stock-picking approach, but only for people willing to stay put for the long haul, says a study by the Value Line Mutual Fund Advisor.
The New York publication found that growth mutual funds lagged value funds over the 12 months ended Aug. 31 but outperformed over the three, five and 10 years ended on that date. Over the 10-year stretch, growth funds posted a 12.6% average annual gain, versus 10.6% for their value rivals. But the growth portfolios also were more volatile.
Growth fund managers focus on rapidly expanding companies showing strong sales and earnings gains, and value investors seek out stocks selling at bargain prices, as evidenced by their lower price-to-earnings ratios, higher dividend yields and so on.
Contributing to this column were Bloomberg Business News, Reuters and Russ Wiles, a financial columnist for the Arizona Republic.
