Vinik Pursues Small Caps

Former Fidelity Investments manager Jeffrey Vinik, who started his own fund in November, is making his latest big bet on small-cap stocks at the same time shares in the largest companies are gaining the most.

About 53 percent of Vinik’s $850 million invested in U.S. stocks as of the end of 1996 were invested in companies with a market capitalization of less than $600 million, said Cary Krosinsky, vice president of research at Technimetrics Inc., a New York firm that tracks institutional investment.

Another 43 percent were in stocks with a market capitalization between $600 million and $3 billion.

“Vinik is very light on large caps,” Krosinsky said, adding they make up only 4.8 percent of his stock holdings.

So far this year, he’d have been better off in bigger companies.

The Standard & Poor’s 500 Index of larger capitalization stocks has climbed 6.96 percent while the Russell 2000 Index of smaller companies has dropped close to one percent.

Vinik ran into trouble when he headed Fidelity’s flagship Magellan Fund - and eventually resigned - after making a similarly contrarian bet on bonds, just at the moment in late 1995 when stocks took off.

Some of Vinik’s biggest holdings in his new fund at the end of the year have tumbled so far this year. He also, however, shorts stocks, that is borrows shares and immediately sells them in the hopes that the price will drop and he can buy them back more cheaply. If he chose well, he could be making lots of money on those trades.

When Vinik started his fund in November, an investor said he planned to have 70 percent of his portfolio long and 40 percent short, the extra 10 percent coming from leveraging or borrowing.

Because Vinik runs a hedge fund, those portfolios for wealthy individuals that are unregulated by the Securities and Exchange Commission, he isn’t obliged to publicly report performance numbers. Executives at Vinik Asset Management weren’t available for comment. One of Vinik’s investors, who asked not to be named, refused to provide exact returns, but said Vinik was doing well and was in control.

Three of Vinik’s top five holdings at the end of the year, which made up about 12 percent of his stock holdings according to Technimetrics, have fallen between 11 percent and 35 percent so far in 1997.