Windsor Stands Out in Beating S&P;’s Rise

Just one of America’s 10 biggest mutual funds did better than the benchmark Standard & Poor’s 500 Index by this week--and it’s off-limits to new investors.

Vanguard Group’s Windsor Fund was up 25.8% for the year as of Monday, exceeding the 23.9% rise of the S&P; 500, adjusted to include reinvested dividends. The U.S.’ ninth-biggest fund, with $16.7 billion in assets, Windsor has been shut to new investors since May 1989.

In 1995, four of the 10 biggest funds beat the S&P; index, comprised of stocks that account for about 75% of the stock market, and a fifth almost matched it.

Windsor’s success was tied to manager Charles Freeman’s decision to cut the fund’s cash level to 10% from 18% and to buy more “growth” stocks such as Compaq Computer and Seagate Technology, a manufacturer of computer disk drives.

By contrast, the biggest fund, Fidelity Investments’ Magellan Fund, was weighed down in the first half of the year by big holdings of bonds and cash.

The $54.4-billion Magellan gained 11.7% for the year, as of Monday, after surging 36.8% in 1995, according to the research group Lipper Analytical Services.

“Any decision to invest outside the equity market was a mistake in 1996,” said William Hayes, director of Fidelity’s $300-billion equity investments group. “Bonds simply haven’t performed well relative to stocks.”

The second-biggest mutual fund, Capital Research and Management Co.’s Investment Company of America, gained 20.2% in the period.

Twentieth Century’s $18.6-billion Ultra fund gained just 15.6%. The fund was hurt by its big investments in small to medium-sized computer-related companies, which lagged the overall market since May.

The poor relative returns of the big mutual funds provide more evidence of how tough it is to beat the benchmark average. When a fund has $15 billion or more in assets, “It’s like trying to turn a freighter,” said Cecil Brown, an investment advisor in Jackson, Mississippi.

Stephen Janachowski, an investment advisor in San Francisco, adds, “Size is a real issue, and Magellan is four or five times too big.”

But Magellan’s size wasn’t the problem in 1996, Hayes said. The fund had too much of its assets outside the U.S. equity market for too long a period, he said.

New manager Robert Stansky reduced Magellan’s bond holdings to 8.7% of its assets on Oct. 31, down from 19.3% on May 31.

“If we ever come to a point where we feel size is hurting performance, we’ll close a fund,” Hayes said.

Fidelity manages four of the nation’s 10 biggest funds. The others are Fidelity Growth & Income, which rose 20.4%, as of Monday; Fidelity Contrafund, which climbed 21.5%; and Fidelity Puritan, which gained 15.8%.

To be fair, Fidelity Puritan tends to lag the S&P; 500 since about 40% of its assets are invested in bonds. Vanguard’s Wellington Fund, which rose 16.9% this year, also invests in bonds.