Magellan Pulls Out Of Bonds

Fidelity Investments’ Magellan Fund cut its bond holdings in September to the lowest level in almost a year and used the proceeds to buy technology stocks such as Intel Corp. and International Business Machines Corp.

Robert Stansky, the fund’s manager, cut Magellan’s bond holdings to 9.8 percent on Sept. 30 from 11.8 percent on Aug. 31, and simultaneously boosted technology stocks to 10.1 percent of the overall portfolio from 6.7 percent, according to Fidelity. “I want to be especially careful not to pay too much when buying a stock,” Stansky said. “That said, I believe stock prices follow earnings over time, and I’ll continue to search for those companies that have excellent earnings prospects. The biggest risk I face when I invest in a stock is that the company doesn’t produce the earnings growth I’m counting on.”

Magellan, the world’s largest mutual fund with $53 billion in assets, had about 19.4 percent of its holdings in bonds in February when the U.S. stock market was rallying and Jeff Vinik was overseeing the fund. Vinik left Fidelity in June to start his own firm.

Vinik began loading Magellan with bonds last November. In October 1995, Magellan had just 1.5 percent of its assets in bonds. A month later, the fund had 11.6 percent in bonds, mostly long-term U.S. Treasuries, according to Fidelity.

The investments in bonds and an above-average cash position hurt Magellan’s performance this year, Stansky wrote in a semi-annual report to shareholders.

“The bond and cash positions not only had the effect of holding the fund back while the broad stock market rose in 1996, the bond stake negatively impacted performance as investors’ fear of higher interest rates drove bond yields higher and prices lower,” Stansky said in one of his rare public comments on investment philosophy since taking over the Magellan helm.

Today, Magellan probably has less than 5 percent of its assets in bonds, said Eric Kobren, whose Wellesley, Massachusetts-based newsletter tracks Fidelity.

“My goal has been to get the best price for (the bonds) in the marketplace, taking advantage of ‘up’ days to sell,” Stansky said in a report released Friday. “Conversely, when I’ve bought new stocks for the fund, I’ve tried to do so when prices have dipped.”