ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, May 25, 1996 TAG: 9605290023
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
DATELINE: BOSTON
SOURCE: Associated Press
THE MAGELLAN FUND'S manager decides to go it alone amid continual criticism of performance.
Despite a disappointing year and criticism of its flagship Magellan Fund, Fidelity Investments added to its considerable share of the $3 trillion mutual fund market last year.
Why?
The country's largest mutual fund manager still outperformed many competitors, and its customers care more about long-term performance than quick returns. Fidelity also has the top brand name in a booming business.
For those reasons, many people who follow mutual funds say the departure of Magellan boss Jeffrey Vinik will be little more than a footnote in Fidelity's history of industry dominance.
``Fidelity has not lost the touch. They've just been out of sync with the market,'' said Jack Bowers, editor of Fidelity Monitor, a Rocklin, Calif., newsletter. ``Anybody who believes Fidelity is over the hill could be surprised over the next two to three years.''
With 238 different funds and $407.7 billion in assets under management, Fidelity controls around 14 percent of the mutual fund business. Vanguard, its closest competitor, manages half of that.
Last year, 19 percent of all the money that flowed into mutual funds went Fidelity's way, according to Lipper Analytical Services. And while its growth has flattened over the last couple of months, it continues to add new money at a good clip.
Part of Fidelity's success rests on its position as the largest provider of 401(k) retirement plans, which rely on automatic payroll deductions.
People who have money in 401(k) plans are more likely to pay attention to overall gains than a fund's performance against benchmarks like the Standard & Poor's 500-stock index. That makes 401(k)s less susceptible to quick ups and downs.
``These aren't people who are focusing on quarter-to-quarter performance reviews. A lot of them put the money in and don't look at it again. And if they do, they're probably pleased,'' said Don Phillips, president of Morningstar Inc., which publishes a mutual fund newsletter.
Phillips and other analysts say critics who have harped on Magellan and other Fidelity funds for failing to match the S&P 500 last year are missing the point.
Unlike Vanguard, which doesn't spend as much money on research and promotes funds that simply mirror popular market indexes, Fidelity tries to sell itself for its stock-picking prowess.
In other words: Vanguard believes in riding the market; Fidelity tries to beat it - and most of the time it does.
``Fidelity's doing great and people, I think, are losing sight of that,'' Phillips said. ``Any time you manage money in as bold a fashion as Fidelity does you're going to have some short-term disappointments.''
In last year's surging market, Vanguard's approach yielded a far better return. Vanguard's family of mutual funds ranked first among 62 managers whose 1995 performance was rated by Lipper. Fidelity finished 45th.
The Magellan Fund has been singled out for criticism, in part because of its size - with $56 billion in assets, it is twice as big as any in the country.
LENGTH: Medium: 69 lines ILLUSTRATION: PHOTO: AP/1992 File. The embattled head of Fidelity's Magellanby CNBFund, Jeff Vinik, quit on Thursday. He has been criticized for poor
returns on the country's largest single mutual fund.