Word: magellan
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...Johnson is vowing to stick with it. If Johnson were still running the Magellan Fund at Fidelity today, he would arrive at Boston's One Federal Street, where the 48 fund managers and 81 analysts of the equity division toil. The atmosphere is more subdued than you would imagine in a place where billions of dollars are riding on the employees' bets. The staff is spread over three floors that are connected by an internal staircase, and stock analysts and fund managers wander around a lot, sticking their heads into one another's offices and trading information...
Fidelity's investment techniques have historically produced market-topping returns--and commensurate fees. Beating the averages, such as the S&P index, is what Fidelity is being paid for. Magellan, for example, charges $9.50 each year for every $1,000 under management. By contrast, the Vanguard fund that passively mimics the S&P 500 charges only $2 for every $1,000. Overall competition in the industry has become so tough that Fidelity has had to lower fees on some of its funds...
...chose stocks randomly. How hard is it to beat the S&P 500? Really hard. Over the past five years, 63% of all diversified-equity mutual funds have failed to do so. The greatest Fidelity performer of all, of course, was Peter Lynch. During his 14 years of managing Magellan, he averaged an annual return of 29.2%; the S&P 500 index rose...
Results for April this year showed that for only the second time in two decades, the three-year return of Magellan had slipped below that of the S&P 500. Jeffrey Vinik, the manager of Magellan at that time, did not last long after these numbers came out; he resigned in May to set up his own investment firm. He was replaced by Bob Stansky, a 13-year veteran at Fidelity who is less likely than Vinik to make big sector bets...
Vinik typified the dual problem Fidelity has struggled with recently. On the one hand, it has had to contend with disappointing performance; on the other, it has come under criticism for being too unpredictable in its investments. Magellan underperformed because Vinik put an enormous chunk of the fund in bonds, believing that stocks were overvalued. Stocks kept going up, and Magellan's relative return suffered. The results numbers aside, there was the question of what Vinik was doing investing so heavily in bonds in the first place, since Magellan is supposed to be a diversified stock fund...