The assets of Fidelity
Investments’ biggest fund, Magellan, fell to the lowest monthly
level in almost four years as U.S. stock markets dropped and
investors withdrew.
Magellan Fund’s assets slipped to $65.9 billion at the end of
June from $71.9 billion in May, according to Fidelity’s Mutual
Fund Guide. The fund peaked in August 2000, when it had
$109.8 billion in assets, the company said.
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The fund was hurt by a decline in the value of the shares it
held and about $519 million in redemptions, analysts said.
Investors yanked as much as $15 billion from stock mutual funds
last month, estimated Avi Nachmany of Strategic Insight, as
accounting and management scandals at companies such as WorldCom
Inc. and Tyco International Ltd. eroded confidence in the markets.
“We are in one of the greatest bear markets of all time —
the third-worst bear market in stock-market history,” said Jim
Weiss, chief investment officer at State Street Research &
Management Co. “The buying power is there. Investors are not
willing to put it in.”
Magellan’s outflows last month were the biggest since
September, when investors took out about $809 million in the wake
of the terrorist attacks, according to Fidelity Investor. It
leaked $1.76 billion in the first half, putting it on pace for a
third year of outflows, said David Pittelli, a senior analyst for
the Needham, Massachusetts-based industry newsletter.
Other funds’ assets also are shrinking as the Dow Jones
Industrial Average declined 15 percent this year, the Standard &
Poor’s 500 Index fell 21 percent, and the Nasdaq Composite Index
dropped 28 percent.
Vanguard Group’s 500 Index has about $77 billion in assets,
down almost a third from a peak of $110.5 billion in August 2000,
according to Financial Research Corp. Vanguard 500 and Magellan
are the largest stock mutual funds in the U.S.
Fewer Fees
Magellan’s lower asset level may mean Boston-based Fidelity
will get fewer fees for managing the fund, Pittelli said. Still,
analysts said it’s unlikely that Fidelity would open the fund to
new investors. The No. 1 U.S. mutual fund firm wouldn’t want the
opening of Magellan to detract from potential new investments in
other Fidelity funds, they said.
Fidelity also may want to see improvement in Magellan’s
performance, analysts said. Magellan has lost 22 percent this
year, slightly more than its benchmark S&P 500. The fund has
lagged the index in six of the past 10 years, according to
Bloomberg data.
Retirement Plans
Since 1997, only existing investors, and those whose
retirement plans offer the fund, could invest in Magellan.
Retirement accounts make up 83 percent of its assets.
“It would simply be embarrassing for Fidelity to reopen the
fund and there not be any interest in it,” said John Bonnanzio,
editor of Fidelity Insight, a Wellesley Hills, Massachusetts-based
newsletter. “The nice thing about those 401(k) assets is that
practically down to the dollar they know what’s coming in and out
every month.”
Fidelity has no current plans to reopen Magellan, spokesman
Vin Loporchio said. Magellan’s assets are the lowest since August
1998, when it had $62.3 billion, according to the Fidelity guide.
Manager Robert Stansky last month slashed Magellan’s cash
position by more than half to 3.2 percent from 6.8 percent in May
as he kept the fund weighted more toward financial and some
consumer stocks, and less on telecommunications and material
stocks such as gold, according to the Fidelity guide.
His top 10 holdings included General Electric Co., Citigroup
Inc. and Wal-Mart Stores Inc. ChevronTexaco Corp. and Fannie Mae
joined the group, replacing Home Depot Inc. and Philip Morris
Cos., the guide said.
“He’s banking on the defensive sectors,” said Jim Lowell,
editor of Fidelity Investor.
Bloomberg News
