Fidelity to close `cumbersome' Magellan fund
Thursday 28 August 1997
The closure of the fund to new investors follows an improvement in the fund's fortunes after a period of underperformance. Fidelity said an expected inflow of cash following the improved investment performance had prompted the decision to close the fund.
Fidelity said existing investors would be allowed to continue topping up their holdings after 30 September but no new investors would be allowed in. Participants in most group retirement plans, where Magellan is an existing investment option, would also be able to continue investing.
Robert Pozen, head of Fidelity's $500bn mutual fund group said of the decision: "By reducing future access to the fund, its assets will grow at reasonable levels." He said the move would allow the fund's manager, Bob Stansky, "to continue to manage the fund in the most effective manner for its shareholders".
The move is unusual for a mutual fund manager, which usually like to keep funds open to maximise their fee income. However, Fidelity has been under pressure to close the fund because, analysts claimed, its cumbersome size was damaging shareholders' returns.
Eric Kobren, editor of Fidelity Insight, an independent newsletter that tracks the investment group, said: "It's in the best interest of shareholders to close Magellan. The fund is just too large."
Fidelity's Magellan is the biggest investment fund by far. Its closest rival, Vanguard Group's Index 500 Portfolio, has about $45bn in assets. Fidelity has said in the past it would close Magellan if the company determined that such a move would be in the best interests of shareholders.
The closure of Magellan comes after record inflows of cash for the first time in 18 months during which poor performance has led to almost $10bn being withdrawn. The inflow follows an improvement in performance since Bob Stansky took over control of the fund from Jeff Vinik in June 1996.
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