Q–Fidelity Magellan was declared dead on arrival a year and a half ago. Yet it’s met or beaten the index funds over the past year. I have not heard you mention the fund in some time now. One could do worse than the giant all of us have long counted out.
A–Well, yes, but just don’t expect the spectacular returns of the fund’s Peter Lynch days to return, either.
While portfolio manager Bob Stansky unfortunately inherited a large bond position from predecessor Jeff Vinik, over the past two years he has steadily converted the nation’s largest fund into a solid large-cap stock vehicle.
The $75 billion Fidelity Magellan has built some positive momentum over the past 12 months, gaining 28.97 percent to rank just below the top one-third of all large blended stock funds. Its three-year annualized return of 22.08, however, still places it in the lowest 15 percent of its peers.
The fund in its current configuration is likely to stick fairly close to the results of the Standard & Poor’s 500, with Stansky’s stock-picking acumen giving it an added boost. That means no dramatic overperformance or underperformance, which is what most pundits predicted after Vinik exited and Stansky came on board.
Magellan has been closed to new investors since Sept. 30, 1997.
“We have a `hold’ rating on the fund because we think it is so big that there are more compelling funds out there with a better chance of truly excellent performance,” said Nikolas Lanyi, editor of the Fidelity Insight newsletter (published by Kobren Insight Management, P.O. Box 9135, Wellesley Hills, Mass. 02181). “But Stansky has brought a steady, reliable style to the fund, and if, for example, it is one of the only options in a company 401(k) plan, it’s fine to stay with it.”
Magellan’s biggest sectors are technology, finance and health. Its top holdings were recently General Electric Co., Microsoft Corp., Wal-Mart Stores Inc., Merck & Co., Home Depot Inc., Bristol-Myers Squibb, Citicorp, Cisco Systems, Lucent Technologies and American International.
Q–I need your advice concerning my 200 shares of Cisco Systems and my interest in purchasing more. Is this still a good investment? I’m a firm believer in the “buy and hold” concept.
A–What’s not to like about Cisco Systems?
This company, which holds 85 percent of the market for computer network routers, continues to be a darling of Wall Street analysts. It currently receives 17 “strong buy,” 14 “buy” and four “hold” recommendations, according to the I/B/E/S International research firm.
Cisco, the worldwide leader in networking for the Internet, is expected to turn in a 28 percent earnings gain in the current fiscal year, versus a 2 percent decline for the overall computer networking industry. Next year’s 24 percent increase compares to 51 percent industrywide.
“Cisco has a track record of good, consistent growth with no surprises on a year-over-year basis,” said Joseph Abbott, equity stategist with I/B/E/S, noting that the company has enjoyed 33 consecutive quarters of revenue and earnings growth.
Earnings grew 33 percent in the quarter ended April 25, 1998, through balanced growth worldwide.
Q–I recently had to liquidate my 401(k) retirement plan held by a previous employer. I was advised to invest the proceeds in three separate fund accounts with different managers. One of the funds gives you the choice of an “A” account with a front-end fee, or a “B” account with no upfront fee but with a back-end load if you exit the fund within a specified number of years. Can you help explain this?
A–Choose your poison: With a front-end “load” (sales charge), you lose whatever the load amount is right upfront, so you have less invested. On the other hand, because a back-end load usually has higher expenses, performance won’t be as great.
“The first thing to look at is the fund’s track record, to see if it justifies paying either a front-end or back-end load,” advised Edward Foster, director of research for Fabian Investment Resources and the Fabian Mutual Fund Newsletter, 2100 Main St., Suite 300, Huntington Beach, Calif. 92648.
That said, if you employ a long-term “buy and hold” approach of more than five years, it’s probably more feasible to buy the fund with the back-end load, Foster said. However, if you don’t take a long-term approach, it makes more sense to pay the load upfront because of the back-end load fund’s higher expenses and, of course, the back-end load you’ll pay if you exit prematurely.
Foster suggests taking a do-it-yourself approach and buying “no-load” funds instead. Yet it’s basically up to the individual investor to decide whether to use a financial planner or stockbroker in making one’s investments, so long as he’s aware that he will incur some costs in the process.
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Andrew Leckey, a financial anchor on the CNBC Cable Television Network, answers reader questions only through the column. Address inquiries to Andrew Leckey, “Successful Investing,” 76 N. Maple Ave., Suite 367, Ridgewood, N.J. 07450, or by e-mail at successinv@aol.
com.
