Fidelity's Stansky Is Cautious on Stocks
By John Hechinger
05/17/1999 - The Wall Street Journal
(Copyright (c) 1999, Dow Jones & Company, Inc.)
BOSTON -- The manager of the nation's largest mutual fund is sounding a cautious note on the price of stocks, especially large companies, Internet and technology shares-all of which have helped him achieve market-beating returns lately.
Robert Stansky, manager of Fidelity Investments' flagship Magellan Fund, said he was especially worried that corporate earnings might not be strong enough to sustain current stock prices -- or that investors could be surprised by a turn in interest rates and inflation, which are historically low. Mr. Stansky made his comments in Magellan's annual report, released late Friday.
And, citing the dominance of large stocks, which are the focus of his more than $90 billion fund, he said: "At some point, the stocks may need to take a breather to allow the earnings to catch up."
Mr. Stansky's rare public utterances are carefully watched because his fund can have such an impact on markets. For example, last month Fidelity disclosed that Mr. Stansky had cut back his holdings in technology shares to 20.9% on March 31 from 21.9% on Feb. 28 and 25.5% on Jan. 31. Some analysts blamed a downturn in tech shares in part on that disclosure.
As with all its funds, Fidelity releases a list of Magellan's complete holdings only twice a year, so the report provides a rare window into the selections of one of the nation's top stock pickers.
In one surprise, Mr. Stansky disclosed that, despite his selling of many technology shares, he increased his position in America Online Inc., which rose to 2.3% from 1.5% six months ago. Of course, the report didn't note whether the AOL position had been higher a couple of months ago. A spokesman said Mr. Stansky wouldn't be available for comment.
Mr. Stansky said he has been leery of Web shares because "many Internet companies aren't making a profit and their stocks are very volatile." But he added that his holding of AOL was "the single largest positive contribution to the fund's performance over the past year." He said he liked the company's subscriber growth, fueled by low-priced personal computers and its growing advertising revenue.
But Mr. Stansky said the earnings assumptions of technology investors had grown "a bit too idyllic" so he took some profits. Over the past six months he reduced his holdings of Lucent Technologies Inc. from 14.8 million shares to 7.4 million, which made it drop from his closely watched top 10 holdings. Mr. Stansky also no longer owns Internet portal Yahoo! Inc. or 3Com Corp., the computer network equipment maker. And, over the past six months, he reduced the number of shares he holds of Compaq Computer Corp. Dell Computer Corp. and EMC Corp., the fastgrowing computer-storage company.
Mr. Stansky upped his position in financial stocks, including Citigroup Inc. and Chase Manhattan Corp., which benefited from the rebound in the capital markets after the downturn last fall. And, suggesting some of his caution on the markets, he increased his utilities position to 7.3% from 6.2% six months ago, adding heavily to MCI WorldCom Inc., now his third-largest holding, making up 2.4% of his portfolio.
Still, despite his worries about the market, Mr. Stansky said he remains "generally optimistic." He said: "I want to be ready should a market drop present buying opportunities in stocks where I believe prospects remain strong."
In the year ended March 31, the fund's fiscal year, Magellan returned 25.63%beating the Standard&Poor's 500-stock index, which increased 18.46%. Mr. Stansky did so in large part by scooping up swooning technology shares when stock prices fell sharply in July and August. So far this year, Magellan is up 9.64%, just a touch ahead of the S&P 500, according to Morningstar Inc.
Investors have certainly taken notice. In the first quarter, Magellan -- even though it is closed to most new investorswas the nation's 17th best-selling fund, taking in more than $1 billion in new money, according to Financial Research Corp., the Boston fund tracker. In the 1998 first quarter, the fund had net withdrawals of $714 million. In April, Magellan took in $734 million in new cash, its best month since January 1996, according to Alpha Equity Research Inc., a Portsmouth, N.H., Fidelity tracker.
MORNINGSTAR&STOCKS: Morningstar, the Chicago-based fund tracker, said it will begin assigning grades to the stocks it covers in its monthly StockInvestor newsletter this July. The newsletter will attach grades to stocks based on how they stack up against their peers in each sector. Foreign stocks that trade on U.S. exchanges will also be covered. Several years ago, Morningstar introduced the star-rating system for mutual funds, which has since grown into an influential determinant for many fund buyers.
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